Date: 20090427
Dockets: T-2191-07
T-724-08
Citation: 2009
FC 416
Toronto, Ontario, April 27, 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
AMENDED 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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