Date: 20090415
Dockets: T-2191-07
T-724-08
Citation: 2009
FC 375
Toronto, Ontario, April 15, 2009
PRESENT: Kevin R. Aalto, Esquire, Prothonotary
BETWEEN:
MULTI FORMULATIONS LTD., CELL
FORMULATIONS LTD., NEW CELL
FORMULATIONS LTD., PUMP FORMULATIONS
LTD., SIX STAR
FORMULATIONS LTD., MTOR FORMULATIONS
LTD., MASS FORMULATIONS
LTD., IML FORMULATIONS LTD., HALO
FORMULATIONS LTD., HHC
FORMULATIONS LTD., LEUKIC FORMULATIONS
LTD. and CANADIAN
SUPPLEMENT TRADEMARK LTD.
Plaintiffs
and
ALLMAX NUTRITION INC., HEALTHY
BODY SERVICES INC.,
RON TORCH and MICHAEL KICHUK
Defendants
AND BETWEEN:
ALLMAX NUTRITION INC. and
HEALTHY BODY SERVICES INC.
Plaintiffs by Counterclaim
and
MULTIFORMULATIONS LTD., CELL FORMULATIONS
LTD., NEW CELL
FORMULATIONS LTD., PUMP FORMULATIONS LTD.,
SIX STAR FORMULATIONS
LTD., MTOR FORMULATIONS LTD., MASS
FORMULATIONS LTD., IML
FORMULATIONS LTD., HALO FORMULATIONS
LTD., HHC FORMULATIONS LTD.,
LEUKIC FORMULATIONS LTD., CANADIAN
SUPPLEMENT TRADEMARK LTD.,
IOVATE HEALTH SCIENCES INTERNATIONAL
INC., IOVATE HEALTH SCIENCES
INC., TERRY BEGLEY and PAUL
TIMOTHY GARDINER
Defendants by Counterclaim
REASONS FOR ORDER AND ORDER
[1]
The
parties sell nutritional supplementary products and compete within the same
markets The Plaintiffs, a group of associated companies (collectively “Iovate”
or the “Iovate Group”), have brought these two actions which allege, inter
alia, infringement of Canadian Patents 2,194,218, 2,208,047 and 2,028,581.
The first two patents are in issue in action T-2191-07 and the third patent is
in issue in T-724-08. The Defendants are a group of associated companies
(collectively “Allmax”) who are alleged to be infringing the patents in issue.
The Iovate Group’s interest in these patents was assigned to it by third
parties. Apparently, members of the Iovate Group have commenced litigation
against Allmax in the United
States. The
subject matter of the litigation in the United States overlaps to some extent these actions
and involves some of the same products.
[2]
In their
Statement of Defence and Counterclaim (the “Pleading”), Allmax adds a number of
parties including two individuals, Terry Begley (“Begley”) and Paul Timothy
Gardiner (“Gardiner”). These individuals are principals of various companies
within the Iovate Group or so it is alleged. The primary focus of the Pleading
is with respect to anti-competitive activity and other causes of action that
flow from the provisions of the Competition Act, R.S.C. 1985, c. C. 34.
There are also claims relating to a conspiracy to restrict advertising in
publications of Allmax products, interference with economic relations,
discriminatory pricing, misleading advertising and inducing breach of
contract. All of these causes of action, it is alleged, flow from Iovate’s
conduct and that of its principals who, it is also alleged, conspired together
to lessen competition and drive Allmax out of the market. Iovate seeks to
strike from the Pleading many of these various causes of action and
particularly those relating to the Competition Act.
[3]
Prior to
bringing this motion, Iovate’s counsel sent a Demand for Particulars to counsel
for Allmax. In responding to the Demand for Particulars, counsel for Allmax
noted that most of the particulars requested were in the nature of evidence and
early discovery as opposed to proper particulars. Notwithstanding this
position, counsel for Allmax provided particulars in response to many of the
items in the Demand for Particulars. Iovate then brought this motion to
strike.
[4]
The issues
on the motion are whether these claims should be struck out and dismissed
without leave to amend against Iovate and, in particular, the individual
Defendants, Begley and Gardiner; second, if the claims are not struck out
whether Allmax should provide the requested particulars; and third, should
Iovate be granted an extension of time to serve and file its responding
pleading.
[5]
During the
course of argument, counsel for Allmax conceded that claims relating to section
61(6) of the Competition Act were withdrawn and therefore they will be
struck from paragraphs 85, 93 and 95 of the fresh as Amended Statement of
Defence and Counterclaim. As well, counsel for the Iovate Group conceded that,
having now read the Written Representations of Allmax, had paragraphs 91 and 92
been pleaded in the form of the Written Representations that they would survive
a motion to strike. Thus, Iovate’s counsel argued that if these paragraphs
were struck with leave to amend and they were amended essentially in the form
of paragraph 33 of the Written Representations of Allmax, they would meet the
minimum standards of pleading. So that there is no issue or misunderstanding
regarding the meaning of these paragraphs of the Pleading, they will be struck
with leave to amend in essentially the same form as paragraph 33 of the Written
Representations of Allmax.
[6]
The tests
for striking out a pleading or parts of a pleading are well known. The
jurisdiction to do so is found in Rule 21(1) of the Federal Courts Rules.
The most frequently cited test is that found in Hunt v. Carey Canada Inc.,
[1992] S.C.R. 959 at page 980. The test is whether, assuming all of the
allegations in the Pleading to be true, it is plain and obvious that the claim
cannot succeed. The onus is on Iovate to establish that there are appropriate
grounds to strike the Pleading. Justice Blanchard in Apotex Inc. v.
Syntex Pharmaceuticals International Ltd. [2005] F.C.J. No. 1600 at par.
31, aff’d at [2006] 47 C.P.R. (4th) 328, summarized the test in this
fashion:
The onus of proof on the party moving to
strike a pleading is a heavy one. The discretion to strike out pleadings
should only be exercised in plain and obvious cases where the Court is
satisfied beyond doubt that the allegation cannot be supported and is certain
to fail at trial because it contains a radical defect.
[7]
The
impugned portions of the Pleading focus mainly on the causes of action alleged
in respect of various sections of the Competition Act: in particular,
the conspiracy section - section 45; and, the discriminatory pricing section –
section 50(1)(a). The allegations of conspiracy and discriminatory pricing are
founded in section 36 which provides that any person who has suffered a loss or
damage as a result of conduct that is contrary to any provision of Part VI of
the Competition Act may sue and recover from the person(s) who
engaged in the conduct.
[8]
Allmax has
pleaded that Iovate engages in anti-competitive activity contrary to section 45
and making false and misleading representations under section 52(1). These two
sections fall within Part VI of the Competition Act. The onus is on
Iovate to demonstrate that the allegations in the Pleading are not sustainable
and are bereft of any chance of success if they are to be struck.
Section 45 Cause of Action
[9]
Section 45
addresses anti-competitive conspiracies. In order for a claim to succeed a Plaintiff
must demonstrate a number of elements. They include:
·
the
identification of the alleged conspirators
·
an
agreement, combination or arrangement to conspire;
·
an
improper purpose being the undue prevention or lessening of competition in a
particular geographic and product market flowing from the implementation of the
agreement, combination or arrangement
·
an
intention by the conspirators to enter into the conspiracy
·
an
intention to unduly lessen competition, and,
·
that
damage has resulted from the conspiracy.
[10]
These
principles are summarized in cases such as Apotex Inc. v. Laboratoire
Fournier S.A. [2006] O.J. No. 4555, a decision of the Ontario Superior
Court of Justice, in which Mr. Justice Belobaba observed:
Both parties agree that in pleading
conspiracy Apotex must identify the alleged conspirators, the agreement to
conspire the improper purpose the actions taken and the damage that resulted:
Normart Management Limited v. Westhill Redevelopment Co. (1998), 37 O.R. 3rd (C.A.) at 104.
[11]
As is
often the case in alleging a conspiracy, the particulars of a conspiracy are
not broadcast widely and Plaintiffs at the outset of proceedings frequently do
not possess the precise details of the alleged conspiracy. As noted by Justice
Cumming of the Ontario Superior Court of Justice in North York Branson
Hospital v. Praxair Canada Inc. (1998), 84 C.P.R. (3d) 12, at par.
22 (Div. Ct.):
In truth, the very nature of a claim of
conspiracy is that the tort resists detailed particularization at early
stages. The relevant evidence will likely be in the hands and minds of the
alleged conspirators. Part of the character of conspiracy is its secrecy and
the withholding of information from alleged victims. The existence of an underlined
agreement bringing the conspiracy together, proof of which is a requirement
born by a Plaintiff often must proven by an indirect or circumstantial
evidence. A conspiracy is more likely to be proven by evidence of invert acts
and statements by the conspirators from which the prior agreement can be
logically inferred. Such details were not usually being available to a Plaintiff
until discoveries. These considerations and the general theme of hunt,
instructing Courts not to shy away from difficult litigation, also militate
against holding pleadings in a civil conspiracy cases to an extraordinary
standard.
[12]
It is
through the prism of these principles that this Pleading must be considered.
[13]
The
impugned portions of the conspiracy Pleading in issue allege three types of
conduct of the alleged conspirators which are breach of the Competition Act:
the assignment of patents as the result of settlement of litigation;
interference with customer and supplier litigation; and, interference with
business relationships.
[14]
Allmax
pleads that the Iovate Group have acquired patents and commenced litigation
against their competitors. Indeed, the litigation has been particularized in a
schedule to the Pleading. Allmax alleges that the litigation is in furtherance
of acquiring patents with the purpose of asserting those patents against other
competitors such as Allmax. This conduct, it is alleged constitutes a breach
of section 45. As support for this proposition, Allmax cites the Federal Court
of Appeal in Eli Lilly v. Apotex Inc. et al. v. Eli
Lilly et al. 2005 FCA 361, wherein Justice Evans observed:
[25]. To subject the right to assign patents to
section 45 in the circumstances under consideration in this case is also
consistent with the scheme of the Competition Act.
[26]. For example, subsections 45(3), (7) and
(7.1) provide specific exceptions and defences to the offences created by subsection
45(1). None deals with intellectual property rights. Moreover, it is clear that
Parliament considered the interface of the Competition Act and
intellectual property rights. For example, while subsection 79(1) prohibits the
abuse of market dominance, subsection 79(5) provides that, for the purpose of
section 79, "an act engaged in pursuant only to the exercise of any right
... derived under the ... Patent Act ... is not an anti-competitive
act." Section 45 contains no analogous exemption for the exercise of
rights under the Patent Act, including assignments pursuant to section
50.
[27]. In light of the above, the presumption of
statutory interpretation, expressio unius est exclusio alterius,
supports an interpretation of section 45 that does not impliedly exclude an
assignment of patents which lessens competition by increasing the market power
of the assignee beyond that inherent in the rights assigned.
[28] Further, section 32 provides that the
Federal Court may make certain orders where use is made of the exclusive rights
conferred by a patent so as to unduly restrain trade or lessen competition in
an article. It is clear from this that Parliament did not intend to exclude the
exercise of patent rights from the reach of the Competition Act
altogether. In order to achieve consistency with section 32, section 45 should
be interpreted as applicable to an assignment of a patent which unduly lessens
competition.
[15]
Based on
this jurisprudence, the allegations relating to the assignment of the patents
are sufficiently pleaded to survive this attack.
[16]
Another
portion of the Pleading under attack is that relating to an alleged unlawful
agreement to restrict advertising and publication of Allmax and Health Body
Services Inc. (“HBS”) products thereby restraining and injuring competition.
The Pleading alleges that members of the Iovate Group and each of Wieder
Publications (“Wieder”) and MuscleMag entered into an agreement whereby Wieder
and MuscleMag would not accept advertising or advertorials from Allmax. As
part of its response to the Demand for Particulars, Allmax advised that a
product called LEUTOR had been advertised in MuscleMag but that MuscleMag now
refuses to accept such advertising.
[17]
These
portions of the Pleading sufficiently plead a cause of action which, based on
the principles noted above, are not bereft of any chance of success. The
Pleading alleges the names of the conspirators, the agreement to conspire, the
improper purpose, the action taken and the damage which has resulted. Iovate
has sufficient information to be able to plead to these allegations. This
includes those paragraphs of the Pleading which deal with the business
relationship between Allmax and HBS and GNC, the latter being a retail chain of
stores which carried Allmax and HBS products but which, it is now alleged,
refuses to carry their products in the U.S.
Affiliate and Section 45(8)
[18]
A key argument
of the Iovate Group is that the conspiracy allegations are made against a group
of affiliated companies. The Pleading describes Gardner as the sole director of many of the
companies comprising the Iovate Group. Similarly, Begley is described as the chief
executive officer of one or more of the companies comprising the Iovate Group.
Section 45(8) of the Competition Act provides that a conspiracy claim does
not apply in respect of a conspiracy, combination, agreement or arrangement
that is only entered into by affiliated companies. As conspiracy claims cannot
be made against “affiliates” the conspiracy claims, so it is argued, are bound
to fail.
[19]
The Competition
Act in section 2(2) defines corporations as affiliated if, inter alia,
one of them is the subsidiary of the other or both are subsidiaries of the same
corporation or each of them is controlled by the same person. Section 45(8)
provides an exception to conspiracy claims for corporation “only by companies
each of which is, in respect of every one of the others an affiliate”. It is
to be noted that section 45(8) does not apply to individuals. As pleaded, the
Iovate Group companies are alleged to be owned or in the control of either or
both Gardiner and Begley. This may ultimately be a defence to the conspiracy
claim. Here, although there is pleaded a connection between the Iovate Group
of companies, it is not plain and obvious that, at this stage of the
proceedings the group of defendants as a whole fit within the definition of
affiliates. Further, there is no “affiliation” pleaded with respect to the
Iovate Group and Wieder and MuscleMag and at this stage no conclusion can be
reached whether there is any affiliate status between them. This section of the Pleading
is therefore allowed to remain. No particulars are required as the claim is
sufficiently particularized for Iovate to plead.
Personal Claims
[20]
With
respect to Begley and Gardiner individually, Iovate argues that as there is no
independent cause of action alleged in tort the claims are doomed to failure
and should be struck. It is argued that there are no specific allegations as
against either of them that amount to an individual or separate claim in tort
as required by the case law and that as the directing minds of the Iovate Group
of companies, Gardiner and Begley cannot, by directing the corporations to act
in a certain manner, make an agreement and conspire with the corporations.
Iovate relies on Normart Management Limited v. West Hill
Redevelopment Company Ltd. et al. 37 O.R. (3d) 97 (C.A.) in which Justice Finlayson observed at
p. 103 as follows:
... limiting the acts under review to the
directing minds, per se, a directing mind of a corporation
cannot, by causing the corporation to act in a certain way, be said to have
made an agreement with that corporation. The directing mind could make an
agreement with another corporation by making an agreement with the directing
mind of that other corporation, but if both directing minds are acting on
behalf of their respective corporations, the agreement is between the two
corporations. To conclude otherwise would be to challenge the recognized
separate legal identity afforded to corporations under our law and to conclude
that every corporate action which may give rise to a breach, by virtue of the
decision-making authority of the corporate management, is an action of the directing
minds personally.
[21]
The Iovate
Group also relies on the recent decision of Madam Justice Kiteley in Goodman
v. Earl Rumm et al. 2007 CanLii 38119 (Ont. S.C.). That case involved a motion strike
allegations of conspiracy in a pleading against corporate directors on the
ground that no separate tortious conduct of the individuals apart from the
corporations was pleaded. Justice Kiteley, in striking the pleading, observed
as follows:
[20]. The plaintiff has been greatly injured in his character and
reputation in the community. His character and reputation have been injured in
the eyes of his family, colleagues, business associates and clients. The
plaintiff is entitled to general and aggravated damages for this loss.
[21]. The abuse of process and the conspiracy constitutes a wanton and
outrageous disregard of the plaintiff’s rights. The defendants have
maliciously persisted in repeating the false claims asserted in the Action
without any regard to the reputation of the plaintiff. The
plaintiff is entitled to an award of punitive and exemplary damages.
[22]. The plaintiff proposes that this claim be tried together with the
Action.
[22]
However, factually
this case is different from this case as there is sufficient facts pleaded to
give rise to a separate claim against the individuals. There is also authority
for the proposition that directors, officers and employees of corporations can
be held liable for torts they commit personally even if they are acting in the
course of their duties or in the best interests of the corporation [see, for
example Anger v. Berkshire Investment Group Inc., [2001] O.J. No.
379 (C.A.) at par. 11 and the cases cited therein; and, ScotiaMacleod Inc.
v. People Jewellers Ltd. (1995), 26 O.R. (3d) 481 (C.A.)]. As well, Justice Mactavish in Petrillo
v. Allmax Nutrition Inc. (2006), 54 C.P.R. (4th) 319 observed at
par. 72, based on an analysis of the Federal Court of Appeal’s decision in Mentmore
Manufacturing Co. v. National Merchandise Manufacturing Co.
(1978) 40 C.P.R. (2d) 164, as follows:
Indeed, in order to attract personal liability on the part
of a corporate director or officer, there must be circumstances from which it
is reasonable to conclude that the purpose of the individual was not the
direction of the manufacturing and selling activity of the company in the
ordinary course of his relationship to it, but the deliberate, willful and
knowing pursuit of a course of conduct that was likely to constitute
infringement or reflected an indifference to the risk of it: Mentmore,
at ¶ 28.
[23]
It is to
be noted that both Begley and Gardiner are alleged co-conspirators together
with the Iovate Group companies named in the Pleading. Gardiner is alleged to
be the sole directing mind and/or the sole director of the Iovate Group of
companies while Begley is described as an executive officer of one or more of
the companies in the Iovate Group. The Pleading makes it clear that the Iovate
Group is engaged “in a campaign of anti-competitive behaviour”. At this stage,
the Pleading sufficiently details that Gardiner and Begley, through the
auspices of the Iovate Group are alleged to have conspired, combined, agreed
and arranged to unduly prevent or lessen competition in nutritional
supplements. The Pleading contains the known details of the conduct which is
to prevent the placing of advertising Wieder and MuscleMag and cause GNC not to
carry Allmax products. If these facts are established at trial this is conduct
that would be found to be outside the realm of ordinary business activity. As
such, the requirement of separate tortious conduct of Gardiner and Begley for
purposes of the Pleading has been satisfied.
[24]
The Iovate
Group also argue that the claim against Gardiner and Begley is bereft of any
chance of success because a claim may only proceed against directors and
officers of corporations if the exception in Said v. Butt [1920] 3 K.B.
497 does not apply. To quote the written representations of the Plaintiff: “To
the extent that the claims against Gardiner and Begley relate to inducing
breach of contract, they are protected by the Said v. Butt defence”
(emphasis added). Whether or not Gardiner and Begley are protected by the Said
v. Butt defence is not an issue for a motion to strike pleadings.
To determine if either or both of Gardiner or Begley are entitled to rely on Said
v. Butt requires that evidence be lead regarding their conduct.
This is not permissible on a motion to strike pleadings. Thus, this argument
does not lead to striking the Pleading as against Gardiner and Begley.
[25]
Claims
against corporate officers and directors should not become a disguised attempt
at a fishing expedition to try and elicit information to support a cause of
action that is bereft of success. As noted by Justice Mactavish in Petrillo,
supra:
[36]. Finally, it is not enough for a Plaintiff
to assert personal liability on the part of an officer or director of a company
in a statement of claim, in the hope that evidence to support the allegation
will be uncovered during the discovery process. A lawsuit is not a fishing
expedition, and to do so is an abuse of the court’s process: see Painblanc
v. Kastner, [1994] F.C.J. No. 1671, 58 C.P.R. (3d) 502.
[26]
Here, the
agreement to conspire is sufficiently pleaded and comprises of three elements.
There are the patent assignments which give rise to the litigation; there are
agreements or arrangements between the Begley, Gardiner and the Iovate Group, the
particulars of which are not in the possession of Allmax; and, finally the
agreements with Wieder, MuscleMag and GNC which are specifically pleaded in the
Pleading.
[27]
Thus,
because of the involvement of Begley and Gardner with MuscleMag, Wieder and
GNC, they are proper parties to this counterclaim. Here, sufficient
particulars of a separate cause of action against Gardiner and Begley have been
pleaded and it cannot be said that the allegations are doomed to fail.
Section 50 – Discriminatory Pricing
[28]
Iovate
raises a significant argument in respect of Section 50(1) of the Competition
Act. This section deals with discriminatory pricing. The section reads
as follows:
50(1) Every one engaged in a business who
(a) is a party or privy to, or assists in, any sale that
discriminates to his knowledge, directly or indirectly, against competitors of
a purchaser of articles from him in that any discount, rebate, allowance, price
concession or other advantage is granted to the purchaser over and above any
discount, rebate, allowance, price concession or other advantage that, at the
time the articles are sold to the purchaser, is available to the competitors in
respect of a sale of articles of like quality and quantity,
(b) engages in a policy of selling products in any area of
Canada at prices lower than those exacted by him elsewhere in Canada, having
the effect or tendency of substantially lessening competition or eliminating a
competitor in that part of Canada, or designed to have that effect, or
(c) engages in a policy of selling products at prices
unreasonably low, having the effect or tendency of substantially lessening
competition or eliminating a competitor, or designed to have that effect,
is guilty of an
indictable offence and liable to imprisonment for a term not exceeding two years.
[29]
In
paragraphs 93 through 95 of the Pleading, Allmax alleges the conduct of Iovate
as constituting an illegal trade practice, inducing breach of contract and tortious
interference with economic interests all in contravention of the Competition
Act and more particularly sections 45 (discussed above) and 50(1)(a).
The particulars of the conduct include the fact that Wieder and MuscleMag
refuse to carry advertising from Allmax; and, that GNC refuses to carry Allmax
products, including those products which are the subject of this action and GNC
has cancelled purchase orders already placed with Allmax. The issue is whether
this part of the Pleading sufficiently sets out a cause of action under section
50(1)(a).
[30]
As counsel
noted, section 50(1)(a) of the Competition Act is a very
convoluted and difficult section to understand, interpret and apply. Iovate
argues that it is a section relating to the conduct of a seller and not a
purchaser; it is focused on real and personal property; and, deals with the
sale of like quality and quantity goods. Thus, Iovate argues that the Pleading
does not raise a cause of action coming within section 50(1)(a) and must be
struck because the Pleading does not deal with goods of like quantity and
quality; it deals with the purchase of ad space or shelf space not real or
personal property; and, is not focused one competitor versus another.
[31]
In support
of their position, Iovate relies upon the Skybridge Investments Ltd. v. Metro
Motors Ltd. [2006] B.C.J. No. 2892, a decision of the British
Columbia Court of Appeal wherein the Court cited with approval the motions
judge who stated:
Two of the essential elements to be proved
in a prosecution under this section are “a sale to a purchaser” and a “sale to
a competitor of the purchaser”. The plaintiff’s complaint is not that they are
being discriminated against in the matter of discounts, rebates, allowances,
price concessions or other advantages, in the sale of Ford motor vehicles;
their complaint is that Ford will not sell Ford motor vehicles to them for
resale or export. The plea is bound to fail.
[32]
Iovate argues
that there is nothing in the Pleading relating to like quality and quantity of
goods and there is no “sale to a purchaser” and no “sale to a competitor of the
purchaser”.
[33]
There is
little case law that interprets section 50(1)(a). Notable in the submissions
of Iovate is that one of the few documents that assist in understanding section
50(1)(a) is the Price Discrimination Enforcement Guidelines issued by the
Competition Bureau Canada dated March 12, 2008. In those guidelines the
elements of the offence are described as follows:
The statute sets out a number of factors
which must be satisfied for an offence to have been committed. There must be a
“sale” of “articles” by a “person engaged in a business”. The sale must
involve a “discount, rebate, allowance, price concession or other advantage”
being “granted” to one “purchaser” which is “over and above” that which is
“available” to the purchasers “competitors” in respect of “articles of like
quality and quantity.” The comparison must relate to the prices “available” to
the competitors “at the time the articles are sold to the purchaser.” The sale
may discriminate “directly or indirectly.” The seller must have “knowledge”
that the sale is discriminatory. Finally, the sale must be “part of a practice
of discriminating.”
[34]
Iovate
argues that none of these elements are present in the Pleading, and, as in Skybridge,
any references to Section 50(1)(a) should be struck as the plea is bound to
fail.
[35]
Notwithstanding
the ingenious approach of counsel for Allmax in providing the Court with a
colour-coded parsing of section 50(1)(a) in an effort to demonstrate that the
Pleading raises a cause of action, I am not persuaded that it does so. Counsel
for Allmax emphasized that given the dearth of authority dealing with the
application of section 50(1)(a) that an interpretation of section 50(1)(a) can
be made to fit this case.
[36]
Allmax
argues that Iovate and Allmax are competitors of articles of like quality and
quantity and thus the claim and the counterclaim clearly falls within this
section. Allmax is unable to put their advertising in various magazines
because of the conspiratorial actions and intentional actions of Iovate, Begley
and Gardner.
[37]
Counsel
for Allmax emphasized that given the dearth of authority dealing with the
application of section 50(1)(a) that an interpretation of section 50(1)(a) can
be made to fit this case. The preamble to section 50 reads “everyone engaged
in the business” which Allmax argues is Iovate. The section goes on to read
…“therefore that Iovate is a party or privy and assists in any sale that
discriminates directly or indirectly against a competitor of a purchaser or
articles from him”. This Allmax argues is a very wide provision which
encompasses Allmax. Further, the section speaks to “other advantage” also a
very wide phrase which is not limited in any way and finally that it must be
“in respect of a sale of articles of like quality and quantity”. Allmax argues
that Iovate and Allmax are competitors of articles of like quality and quantity
and thus the Pleading clearly falls within this section.
[38]
However,
it seems to me that as complicated as section 50(1)(a) is, it relates to a
scenario whereby Iovate is selling goods to at least two parties and
discriminating in the price it offers its goods to one party over Allmax. That
is not the case here. While it is a novel argument that the sale of
advertising space in the magazines prevents Allmax from advertising its wares,
it is not a scenario which deals with the same quality and quantity of articles
as contemplated by section 50(1)(a).
[39]
Counsel
for Allmax acknowledged that the interpretation put forward may be seen as
novel but that it was not plain and obvious that it would not succeed. As
support for this approach, counsel for Allmax pointed to a section of the
Guidelines, supra, in which the then Director of Investigation and
Research, commented that the Guidelines were published “with respect to section
50(1)(a) to ensure that the business community better understands the
circumstances which may lead to an investigation under the Act. At the
same time, the business community should be aware that a different
interpretation of the provision could be advanced by parties seeking to recover
damages privately under section 36 of the Act.”
[40]
The
interpretation urged by counsel for Allmax twists the section beyond its plain
and ordinary meaning. The alleged wrongful acts as described in the Pleading
are not those of a sale to a competitor of the purchaser. The alleged wrongful
acts are the interference of the Iovate Group and two of its officers with
right of Allmax and HBS to place advertising for their products in various
magazines and in a retail chain of stores selling their products.
[41]
All novel
interpretations may be arguable but that does not make them legally tenable. In
my view, this part of the Pleading does not fall within section 50(1)(a) and is
bound to fail and references to section 50(1)(a) and section 50 must be struck.
Location of the Alleged Illegal Conduct
[42]
One
further argument advanced by Iovate in support of the proposition that the
claims based on the Competition Act are without any chance of
success, is that the claims are focused on activity that occurred primarily in
the United States. Therefore, the conduct is
outside the purview of the Competition Act.
[43]
In the
Pleading, Allmax refers to conduct that is North American in scope (Wieder is a
publisher of magazines that are distributed throughout North America) and
points specifically to the litigation in Canada that is alleged to be part of the
campaign by the Iovate Group to unduly lessen competition. Allmax relied on
the trial decision in R. v. Stucky [2006] O.J. No. 4933, in
support of the proposition that the phrase “to the public” in section 52(1) of
the Competition Act is not restricted to the Canadian public. On
the appeal from the trial decision, the Court of Appeal for Ontario [R. v. Stucky,
2009 ONCA 151] recently expounded on the meaning of the phrase “to the public”
as found in section 52(1). The Court confirmed the proposition that the phrase
“to the public” is not restricted to the Canadian public. The Court held that
the purpose of the Competition Act supports and interpretation of “to
the public” which includes persons outside of Canada. Justices Weiler and Gillese made the
following observation:
[49]. In choosing to give effect to what
he perceived to be the original intent of the legislation, the trial judge ignored
the evolution in competition law thinking which has led to an increased concern
with international business practices. This concern is reflected not only in
the enactment of further sections of the Act to deal with practices such as
telemarketing and the Internet, but also cross-border agreements between Canada
and the United States. Our understanding of legislation should take into
account current circumstances. As Sullivan writes at p. 145 of the fifth
edition of her text, Sullivan on the Construction of Statutes, 5th
ed. (Markham, Ont.: LexisNexis, 2008):
As a rule, the
public Acts of a legislature are not meant to operate as historical documents.
They are written with an eye to the indefinite future, on the assumption that
they will be applied not only to the facts in existence at the time they come
into force but also to conditions and circumstances as they evolve from time to
time. This assumption is codified in s. 10 of the federal Interpretation
Act [R.S.C.1985, c. I-21]:
The law shall be
considered as always speaking, and where a matter of thing is expressed in the
present tense, it shall be applied to the circumstances as they arise, so that
effect may be given to the enactment according to its true spirit, intent and
meaning.
[56]. … while the overall objective of
the Act, in general, may be to promote vigorous and fair competition, the
objective of the provision in issue here is significantly narrower. That
objective is two-fold: to protect consumers from the effects of false or misleading
statements; and, to prevent those making such statements from reaping the
benefits stemming from these statements. In interpreting the phrase “to the
public”, the trial judge did not consider this second objective.
[57]. Our analysis of the words “to the
public” would not limit “the public” exclusively to persons within Canada. We, therefore, reject the
trial judge’s interpretation of the phrase “to the public” in s.52(1), and
hold, instead, that it should be interpreted as meaning “a group of persons”
with whom the accused has a real and substantial link or connection.
[44]
In my
view, even though the phrase “to the public” was considered in Stucky in
the criminal context and focused on section 52, it is an interpretation that
equally applies to the Competition Act as a whole and to civil
proceedings. The Court of Appeal for Ontario
considered at some length the evolution of competition law and the
international aspects which it entails. There is no reason not to apply a
similar approach here. In the result, Iovate’s argument to strike on this
ground fails.
Particulars
[45]
Iovate
seeks particulars of various miscellaneous paragraphs of the Pleading. For
example, in paragraphs 46, 47 and 59 of the Pleading there are references to “nutritional
supplements”, “health product and supplement business”, “Canada and elsewhere”, “being
wielded” and “usurping market share”. The Iovate Group allege these phrases
are too general and overly broad and that they require particulars. However,
it is to be noted that Iovate in its statement of claim uses phrases such as
“supplement” and “nutritional supplements”. If Iovate is using some of them
why is it that they now need particulars of what these terms mean? In my view,
particulars are not required in order for Iovate to reply to the Pleading.
[46]
Paragraph
90 of the Pleading refers specifically to the assignments of the patents. Iovate
seeks particulars of the parties to the assignments. There is no necessity to
name the assignors as parties to the litigation. For that proposition, Allmax
relies upon a decision of Justice Strayer of this Court in Procter &
Gamble Co. v. Kimberley-Clarke of Canada Ltd., (1986), 12 C.P.R. (3d) 430
(F.C.T.D.). While I do not see that case as supporting the proposition I am
not persuaded in any event that the assignors need be named as parties to the
litigation. They are not alleged to be co-conspirators.
[47]
Finally,
Allmax argues that particulars are not needed by Iovate in order to properly
respond to the Pleading. There is no evidence filed by Iovate that they do not
have sufficient facts to plead in response.
[48]
In my view
the Pleading is sufficiently particularized, especially since some particulars
have been provided, to afford the Iovate group to be able to plead. As such,
having reviewed and considered all of the parts of the Pleading for which
particulars are requested, that relief is denied.
Competition Act Amendments
[49]
Subsequent
to the hearing of this motion, the Competition Act was amended.
As leave is being granted to amend the Pleading arising from these Reasons,
Allmax is also granted leave to plead such of the amendments to the Competition
Act as may be required as a result.
Federal Court Jurisdiction
[50]
The final
point made by Iovate is that a contract between Iovate and magazine companies
is not the subject matter of a claim that flows from the patents that belongs
in this Court. They argue on the basis of the Innotech Pty. Ltd. v. Phoenix
Rotary Spike Harrow Ltd. et al. (1997), 215 N.R. 397 (F.C.A.) that such a
claim, if it is to be advanced, must be advanced in the Provincial Courts. In
that decision, Justice Strayer observed at p. 398:
The
counterclaim, when viewed by itself, would stand alone as an action for breach
of contract and as such is not within the jurisdiction of this Court. Using the
language of Kellogg v. Kellogga-253-97_1240/a-253-97.html#ftn1#ftn1">1
the main action is primarily for the enforcement of a patent. That claim can be
decided on the basis of the statement of claim and the statement of defence,
and incidental to that determination the license, its existence, terms, and
validity may well have to be considered. But the counterclaim which must be
viewed as a distinct action primarily involves a claim for an alleged breach of
contract.
It
may well be, as counsel for the respondent ably demonstrated, that this result
will lead to inconvenience. But that is not, of itself, a basis for this Court
assuming jurisdiction.
[51]
In that case, the counterclaim appears to have
been a stand alone cause of action. Here, the counterclaim in the Pleading is an
incidental tort or contract claim flowing from the enforcement of the patents.
As has been noted by Justice Harrington of this Court in Areva NP GmbH v.
Atomic Energy of Canada Ltd. [2006] F.C.J. No. 1208:
Atomic Energy does not take the position that
this Court does not have jurisdiction insofar as the action is one for patent
infringement. The tripartite jurisdictional test established by the Supreme
Court in such cases as Canadian Pacific Ltd. v. Quebec North Shore Paper Co.,
[1977] 2 S.C.R. 1054 and ITO-International Terminal Operators Ltd. v. Miida
Electronics Inc., [1986] 1 S.C.R. 752 that the matter must fall within a
class of subject over which Parliament has legislative authority, that there
must be an existing body of federal law essential to the disposition of the
case, and that the administration of that law has been confided to this Court,
has been easily met.
[17]. Section 91(22) of the Constitution Act
gives Parliament legislative authority over “patents of invention and
discovery”, Parliament has enacted the Patent Act, which specifically
deals with infringement, and it confided jurisdiction upon the Federal Court
pursuant to Section 20 of the Federal Courts Act.
[18]. Atomic Energy’s point is that the
original Statement of Claim combined two causes of action: patent infringement,
over which the Court has jurisdiction, and breach of contract, over which it
has not. By the time its Motion to Strike was heard, we were faced with quite a
different Statement of Claim. The conclusions with respect to breach of
contract were dropped, but the contractual allegations remained to support new
conclusions with respect to punitive and exemplary damages. Atomic Energy still
asserts that the long recital of the contractual history between the parties
should be struck, not only on the grounds of immateriality on which more will
be said under that heading, but also because were the Court to award exemplary
and punitive damages, it would have to conclude that it was in breach of
contract, a contract over which this Court has no jurisdiction.
[19]. In my view, the paragraphs in question
should not be struck on jurisdictional grounds for two reasons. The first is
that it is not “plain and obvious” that the contracts in question are beyond
the jurisdiction of the Court. The second is that even if they are, it is open
for Areva to submit Atomic Energy’s behaviour in
relation thereto may justify punitive or exemplary damages, should it be found
the patent has been infringed.
[52]
In my view, this
observation is apposite. I am not prepared at this juncture to hold that this
Court does not have jurisdiction over the claims alleged in the Pleading as the
manner in which they are pleaded flows from the allegations of infringement.
If further support for this conclusion is needed, the explanation of Associate
Chief Justice Jerome, as he then was, in Titan Linkabit Corp v. S.E.E. See
Electronic Engineering Inc., [1992] F.C.J. No. 807 amply supports it. In
that case A.C.J. Jerome noted at p. 3:
Intellectual property disputes which
include contractual disagreements are not unusual. It will not preclude the
Court’s jurisdiction, provided the subject matter of the action primarily
concerns a patent, trade mark or copyright.
[53]
In this case the
primary claim relates to infringement of patents. The defences and causes of action raised in the Pleading all flow from
the enforcement of patent rights. Thus, at this juncture, these claims are
allowed to stand.
Conclusion
[54]
Allmax is
allowed to amend the Pleading in accordance with these reasons although for
greater clarity, with respect to the references to section 50 of the Competition
Act they are struck without leave to amend. Iovate is granted an
extension of time of 30 days following receipt of the amended Pleading to file
its responding pleading. I am grateful to counsel for their very helpful and
thorough written and oral submissions.
[55]
As success
has been divided, there will be no order as to costs.
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