Date: 20130308
Docket: T-1866-11
Citation: 2013
FC 253
Ottawa, Ontario,
March 8, 2013
PRESENT: The
Honourable Mr. Justice Russell
BETWEEN:
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THE SPANGLER CANDY COMPANY
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Plaintiff
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and
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3651410 CANADA INC.,
C.O.B. REGAL CONFECTIONS INC.
AND KARMA CANDY INC.
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Defendants
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REASONS FOR
ORDER AND ORDER
INTRODUCTION
[1]
This
is a motion brought under subsection 51(1) of the Federal Courts Rules,
SOR/98-106, appealing the decision of Prothonotary Milczynski dated 9 October
2011 dismissing the Defendants’ motion to strike the Plaintiff’s Amended
Statement of Claim. The Defendants are asking this Court to exercise its
discretion to strike the pleadings for want of jurisdiction under paragraph
221(1)(a) of the Rules or, in the alternative, to stay the proceedings
under paragraph 50(1)(b) of the Federal Courts Act, RSC 1985, c
F-7.
BACKGROUND
[2]
The
Plaintiff is the owner of Canadian Trade-mark Registration No. TMA 406,215 for
the CANE CLASSICS Trade-mark. For about 18 years, the Defendant Regal
Confections (Regal) had a contractual arrangement with the Plaintiff for the
distribution and sale of CANE CLASSICS candy canes (Contract). In January 2010,
the Plaintiff terminated the contract with Regal.
[3]
In
its Statement of Claim, the Plaintiff alleges that, notwithstanding the
termination of the contract, the Defendants infringed upon the CANE CLASSICS
Trade-mark contrary to sections 19 and 20 of the Trade-marks Act, and passed-off
the Defendants’ wares for those of the Plaintiff contrary to section 7 of the Trade-marks
Act, depreciated the good-will of the Plaintiff contrary to section 22 of
the Trade-marks Act, and infringed upon the Plaintiff’s copyright
contrary to sections 3 and 27 of the Copyright Act.
[4]
The
Plaintiff submitted an Amended Statement of Claim on 16 January 2012 that
pleads that since 2011 the product at issue has been distributed by the Allan
Candy Company.
[5]
In
their Statement of Defence and Counterclaim, the Defendants put forward as
their defence that the termination of the Contract was not lawful and so they
acted under a licence granted by the Plaintiff and are not liable; or
alternatively that the Plaintiff’s intellectual property is not valid.
[6]
As
part of their counterclaim, the Defendants say that the Plaintiff breached the
Contract by advising Regal that it had “discontinued” the product without providing
proper notice and contrary to the express terms of the Contract. Regal claims
that in order to mitigate its losses and meet its customers’ supply
expectations for the 2010 Christmas season it second sourced the product from
the Defendant Karma Candy Inc. After the 2010 Christmas season, Regal ceased
all commercial dealings in the product; there is thus no ongoing or “live”
infringement issue. The Defendants also sought damages for the purported
wrongful termination of the Contract.
[7]
In
its Reply and Defence to Counterclaim, the Plaintiff admits that the parties
had a long standing relationship but disputes the contractual nature thereof.
It also pleads that it had a right to terminate the Contract and did so in a
lawful manner.
[8]
The
Defendants brought a motion before this Court for an Order dismissing this
action for want of jurisdiction under Rule 221(1)(a), or alternatively,
for a stay pursuant to paragraph 50(1)(b) of the Act in favour of
a comprehensive action in a provincial court. The Plaintiff states that, to the
best of its knowledge, the Defendants have not initiated any actions in a
provincial court for the relief claimed in their counterclaim.
[9]
Prothonotary
Milczynski dismissed the Defendants’ motion by way of Order dated 9 October
2012. The Defendants now appeal that Order.
THE
ORDER UNDER REVIEW
[10]
Prothonotary
Milczynski was not satisfied that it was plain and obvious that the action
could not succeed for want of jurisdiction, and found no basis to order that
the action be stayed.
[11]
The
Defendants asserted that the contractual issues raised by the counterclaim were
not ancillary, but went to the heart of the matter. The Defendants claimed that
it was the intellectual property issues that were ancillary to the “live and
operative” contractual issues in dispute. The Defendants argued that
contractual matters are beyond the jurisdiction of the Federal Court, and/or
that a provincial superior court has concurrent jurisdiction over intellectual
property, as well as jurisdiction over contract disputes, and so the parties
ought to go to a provincial court which can comprehensively adjudicate all the
issues.
[12]
Prothonotary
Milczynski did not accept the Defendants’ arguments. She found that the entirety
of the Statement of Claim was based on intellectual property issues, which are
within the jurisdiction of the Federal Court. The fact that some issues of
contract may be reviewed by the Court in the overall consideration of the dispute
does not displace that jurisdiction. The key point is that the proceedings are
founded upon federal law. As the Supreme Court of Canada held in ITO-International
Terminal Operators Ltd. v Miida Electronics Inc., [1986] 1 S.C.R. 752 [ITO]:
The Federal Court is constituted for the better
administration of the laws of Canada. It is not, however, restricted to
applying federal law in cases before it. Where a case is in “pith and substance”
within the court’s statutory jurisdiction, the Federal Court may apply
provincial law incidentally necessary to resolve the issues presented by the
parties…
[13]
In
Innotech Pty. Ltd. v Phoenix Rotary Spike Harrows Ltd., [1997] FCJ No
855 [Innotech], the Federal Court of Appeal held as follows at
paragraphs 2-4:
The statement of claim in this action alleges
infringement of the appellant's patent by Phoenix and others. In its statement
of defence Phoenix alleged that it acted under a license and was therefore not
liable. It also filed a counterclaim seeking a declaration as to the validity
of the license, injunctions for its enforcement, and damages for the alleged
breach by the appellant of the license.
The learned motions judge concluded as follows:
The
Statement of Claim alleges that infringement has taken place since these
defendants have, without permission or license, used the plaintiff's patent. It
is, however, the defendants' contention that their use of the invention was at
all times under a valid license. That pleading is central to their defence. It
also alleges that it is the plaintiff who has acted in breach of the terms of
the license, wherefore it is the defendants who will be entitled to the
customary kind of relief granted at trial, be it injunctive or monetary. In my
opinion, the Counterclaim does no more than particularize the basis of the
grievance claimed by the defendants. The license which forms the basis of the
Counterclaim is the same one that forms the basis of the defence of
non-infringement.
[…]
With respect, it appears to us that although it is
the same license which is involved in both the statement of defence and the
counterclaim, it is invoked for a different purpose in each pleading. In the
statement of defence it is being used as a shield against a claim of infringement.
In the counterclaim it is being used as a sword, a basis for obtaining remedies
against the appellant for its enforcement. 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.
Kellogg 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. …
[14]
Prothonotary
Milczynski found the same reasoning applied to this proceeding; the Plaintiff
relied exclusively on its intellectual property rights and the licensing and distribution
agreement was being used by the Defendants as a shield against those claims.
Also in a similar way to Innotech, the contract is being used in the
counterclaim by the Defendants as a sword for obtaining remedies against the
Plaintiff. Prothonotary Milczynski was satisfied that the Plaintiff’s case was
within the jurisdiction of the Federal Court, even if some contractual issues
would have to be considered.
[15]
Prothonotary
Milczynski was also not satisfied that staying the proceeding in favour of an
action in its entirety being brought in a provincial court was just or
appropriate in the circumstances. A determination of validity or claim for
injunctive relief would still need to return to the Federal Court to have
effect and apply nationally.
[16]
The
Defendants did not establish that continuing the action in the Federal Court would
be an injustice or constitute an abuse. The Defendants would still able to
commence their action for breach of contract in a provincial court.
Prothonotary Milczynski found there was no reason to strike the action or stay
the proceeding in favour of another court.
ISSUE
[17]
The
Defendants submit the following issue in this motion:
a)
Did
Prothonotary Milczynski err in law and/or in the exercise of her discretion in
dismissing the Defendants’ Motion?
STANDARD
OF REVIEW
[18]
In
Canada v Aqua-Gem Investments Ltd., [1993] 2 FC 425 (CA) the
Federal Court of Appeal set out at paragraph 95 that a discretionary decision of
a Prothonotary ought not to be disturbed on appeal unless it can be shown that:
(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)
in making them, the prothonotary improperly exercised his discretion on a question
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.
[19]
The
Defendants submit that the learned Prothonotary exercised her discretion based
upon a misapprehension of the pleaded facts and an error of law, and this
involves questions vital to the final issue of the case. As such, the
Defendants submit that this Court ought to exercise its discretion to decide
the matter de novo and reverse the Order.
[20]
The
Defendants also submit that Prothonotary Milczynski further erred in her
exercise of discretion as her decision is clearly wrong and based on error(s)
of law.
ARGUMENTS
The Defendants
[21]
The
Defendants submit that it is the Amended Statement of Claim that must be looked
at to determine if the relief sought by the Plaintiff requires the
determination of a contractual issue. They submit that Prothonotary Milczynski
erred for the following reasons:
•
She
failed to find that the matter at hand is primarily one of property and civil
rights;
•
She
assumed the Contract was lawfully terminated on 19 January 2010;
•
She
failed to find that the intellectual property issues alleged by the Plaintiff
were ancillary to the central issues of contract, termination, notice,
mitigation and negligent/intentional misrepresentation put forward by the
Defendants;
•
She
failed to distinguish the facts of this case from those of Innotech, and
failed to apply the reasoning and law set out in Engineering Dynamics Ltd. v
Joannou, [1996] FCJ No 1348 [Engineering Dynamics];
•
She
failed to give effect to the law and jurisdiction of the Contract, which is
either the law of the Province of Quebec or the State of Ohio; and
•
In
the alternative, she failed to stay the within action in the interests of
justice in favour of a more comprehensive action to be brought in a provincial
superior court or a court in Ohio.
[22]
The
Defendants submit that the matter before this Court is, in pith and substance,
one of property and civil rights, and that any intellectual property issues are
merely ancillary. This action depends upon a determination of:
•
The
legality of the termination of the Contract;
•
The
right of Regal to be afforded proper notice of termination;
•
The
mitigation of damages by Regal caused by the Plaintiff’s alleged breach of the
Contract;
•
The
Plaintiff’s negligent and/or intentional misrepresentation concerning the
discontinuance of the product in Canada and the implied abandonment of the
associated intellectual property in Canada.
[23]
The
Defendants submit that these are all important and primary issues that are
based on contract and provincial common law. Section 92 of the Constitution
Act grants powers pertaining to property and civil rights to the provinces.
Further, the Federal Court only has jurisdiction to entertain actions firmly
grounded in federal legislation (Canadian Pacific Ltd. v Quebec North Shore
Paper Co., [1977] 2 S.C.R. 1054; R. v McNamara Construction (Western) Ltd.,
[1977] 2 S.C.R. 654).
[24]
The
Plaintiff pleads that the Contract was lawfully terminated in paragraph 19 of
its Amended Statement of Claim, and joins the issue on termination in paragraph
12 of its Reply and Defence to Counterclaim. The Defendants pleads that the
Contract was unlawfully terminated. Therefore, a determination of the
lawfulness of the Contract is a condition precedent to consideration of the
Plaintiff’s claims of infringement.
[25]
The
Defendants submit that the legality of the purported termination of the
Contract is the central issue in this case. This is obviously a contractual
matter, and thus outside the jurisdiction of this Court. It is plain and
obvious that the Plaintiff’s action cannot succeed, or otherwise access federal
law, if the Contract was not lawfully terminated. If the termination was not
lawful, there was no infringement.
[26]
Subsection
20(2) of the Federal Courts Act grants the Federal Court concurrent (not
exclusive) jurisdiction over intellectual property. However, these issues must
be the primary issues to be resolved for the Court to have jurisdiction, and
cannot be merely ancillary. The Defendants submit that this is in essence a
commercial dispute that arose at the end of a long-term contractual
arrangement. In Lawthier v 424470 BC Ltd., [1995] FCJ No 549 [Lawthier]
at paragraphs 5-6, the Court held as follows:
This Court has no jurisdiction to entertain a
dispute which is solely a matter of contract. However, it will entertain an
action which involves a contractual dispute, if the action primarily concerns a
patent, trade mark or copyright. In this case, the pleadings disclose that the
principal issue is whether or not the Plaintiff is entitled, in Canada, to a reassignment of the Patent. The Defendant alleges that the Plaintiff was
offered an option to reacquire the patent but that the Plaintiff refused to pay
the agreed price and that the option has lapsed. The central issue would seem
to be the nature of the option agreement and whether or not the parties have
complied with its terms.
In my view, the determination of this contractual
issue will dictate ownership of the patent and the appropriate relief in
respect of the patent. For this reason, I have concluded that this is primarily
a case in contract and that the patent issues are ancillary. Accordingly, this
Court is without jurisdiction. The Plaintiff should pursue his rights in the Supreme
Court of British Columbia. As Mr. Justice Dubé noted in Laurin v. Champagne
(1991), 38 C.P.R. (3d) 193 (F.C.T.D.) at p. 196, the Plaintiff may apply to
this Court in the future to vary the registration of the Assignment should such
an application be required.
[27]
The
Defendants further submit that Prothonotary Milczynski misapplied the reasoning
in Innotech, above. In that case, it was the plaintiff who moved to have
the defendant’s counterclaim struck. The defendant had pleaded that it had
permission to use the intellectual property by way of a sublicense or implied
license from a third party. The defendant had no pre-existing direct or
contractual relationship with the plaintiff in that case. It was held that the
counterclaim was a stand-alone claim in contract, and was struck. However, the
Federal Court of Appeal did not speak to its jurisdiction to determine
contractual issues of an existing contract between the parties.
[28]
This
issue was addressed in Engineering Dynamics, above, where Prothonotary
Morneau explained as follows at paragraph 14:
However, when consideration of the remedies sought
inevitably involves determining a breach or nullity of a contract between
individuals, the Court, even though the matter may be one of intellectual
property, or I would add in any other area, must decline jurisdiction in favour
of the provincial courts.
[29]
The
Defendants submit that Prothonotary Milczynski erred at law by failing to
follow and apply Engineering Dynamics. In particular, she failed to give
effect to the following facts which are apparent on the face of the pleadings:
•
The
parties had an 18-year distributing and licensing relationship which in 2010
was either governed by the Contract, as the Defendants plead, or an unwritten
agreement, as the Plaintiff pleads;
•
On
19 January 2010, the Plaintiff wrote to Regal saying that it intended to
discontinue the Candy Cane product line in Canada, which as a necessary
consequence meant that it was abandoning use of the associated intellectual
property in Canada;
•
In
an attempt to mitigate its damages, Regal second sourced the Candy Cane
product, and sold said product for a single selling season, namely Christmas,
2010;
•
The
Contract expressly provides that notice of termination without cause must be
accompanied by a payment of $25,000. No such payment was delivered or alleged
to be delivered;
•
The
Contract provides that the choice of law and jurisdiction for any dispute
thereunder shall be the laws of the State of Ohio.
[30]
The
Defendants submit that if a Court finds that the Contract was not extended
after its explicit ten-year term, then the law applicable to the unwritten
contractual relationship between the parties must be the law of one of their
respective residences, namely Quebec or Ohio.
[31]
Based
on the above, the Defendants submit that on any analysis it is plain and
obvious that the intellectual property issues in this case are incidental or
ancillary to the main question of the lawfulness of the termination of the
Contract. The intellectual property issues only arise if the alleged
termination was lawful. Even then, the only operative issue is one of damages,
which necessarily depends on the contractual findings.
[32]
The
termination of the Contract (or contractual relationship) and the related
issues concerning notice, mitigation, and negligent or intentional
misrepresentation are all outside the statutory jurisdiction of the Federal
Court. The Defendants submit that the Court should exercise its jurisdiction to
strike out these pleadings for want of jurisdiction under Rule 221(1)(a).
[33]
The
Defendants point out that the provinces have concurrent jurisdiction for the
intellectual property issues pleaded in this action, and exclusive jurisdiction
for the contractual issues. A provincial court would therefore be
jurisdictionally able to comprehensively adjudicate the matter. The Defendants
submit that they are entitled to defend themselves in one court, and should not
be obliged to bring a multiplicity of proceedings to mount all their defences
to the Plaintiff’s allegations. The Defendants request that the Court exercise
its discretion to stay these proceedings under paragraph 50(1)(b) of the
Federal Courts Act.
The
Plaintiff
[34]
The
Plaintiff submits that the decision in ITO established that the Federal
Court may apply provincial law to proceedings otherwise founded on federal law
and within the Court’s jurisdiction. The presence of a contractual element to a
dispute will not preclude the Federal Court’s jurisdiction, provided the
subject matter of the action primarily concerns a patent, trade-mark or
copyright.
[35]
In
Kellogg Co. v Kellogg, [1941] S.C.R. 242, the Supreme Court made the
following statement:
…the Exchequer Court has no jurisdiction to
determine an issue purely and simply concerning a contract between subject and
subject …but here the subject-matter of the appellant's allegation only
incidentally refers to the contract of employment between John L. Kellogg, Jr.,
and the appellant. The allegation primarily concerns the invention alleged to
have been made by him and of which the appellant claims to be the owner as a
result of the contract and of the other facts set forth in the allegation. The
contract and the claims based thereon are advanced for the purpose of
establishing that the appellant is entitled both to the rights deriving from
the invention and to the issue of a patent in its own name.
[36]
The
Plaintiff submits that the Innotech decision, at paragraph 4, is similar
to the case at bar:
With respect, it appears to us that although it is
the same license which is involved in both the statement of defence and the
counterclaim, it is invoked for a different purpose in each pleading. In the
statement of defence it is being used as a shield against a claim of
infringement. In the counterclaim it is being used as a sword, a basis for
obtaining remedies against the appellant for its enforcement. 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. Kellogg 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. …
[37]
In
a related decision to Innotech, (Innotech Pty. Ltd. v Phoenix Spike
Harrows Ltd., (1997) 75 CPR (3d) 27 (FC) [Innotech 2]), it was
re-iterated that the Federal Court’s jurisdiction extends to the consideration
of a licence, its existence, terms and validity where those are incidental to
the primary issues of infringement.
[38]
In
this case, the Plaintiff’s claims relate exclusively to trade-mark and
copyright, specifically:
•
Trade-mark
infringement, passing-off and depreciation of goodwill pursuant to the Trade-marks
Act; and
•
Copyright
infringement pursuant to the Copyrights Act.
[39]
The
Plaintiff does not invoke the licence as part of its claim. It is the
Defendants who raise the licence by relying on it as a defence and using it as
a shield against the claim of infringement. The Defendants also use the licence
as a sword and as a basis for obtaining remedies against the Plaintiff in their
counterclaim.
[40]
The
Plaintiff states that the circumstances in Innotech were virtually identical
to the ones at bar, and that the matter in that case was determined to be
within the jurisdiction of the Federal Court. Further, the contractual
considerations which the Defendants state must be considered for the
adjudication of the claim do not preclude the Federal Court from maintaining
jurisdiction. As articulated in the above case law, these types of contractual
considerations are within the scope of matters that can be determined by the
Court when incidental to an action that is primarily in respect of trade-mark,
copyright or patent.
[41]
Furthermore,
the contractual issues listed by the Defendants that deal with damages from the
purported wrongful termination are irrelevant to the Plaintiff’s claim. Those
questions are the subject matter of the Defendants’ counterclaim.
[42]
The
Plaintiff submits that the cases relied up by the Defendants do not support the
conclusion that the Court is without jurisdiction to adjudicate this matter.
Those cases do not involve allegations of infringement of patents, copyrights or
trade-marks, but consist only of claims to relief depending solely on
contractual interpretation.
[43]
In
Engineering Dynamics, the plaintiff sought a declaration of
ownership of certain patents. The Court found this issue was entirely dependant
on contract, and contrasted it with actions which primarily concern
intellectual property issues.
[44]
In
Lawthier, above, the issue was whether or not, by contract, the plaintiff
was entitled to reassignment of a patent. This was contrasted to cases which
involve contractual disputes, but where the action primarily concerns
intellectual property. The Court held the central issue to be contractual,
specifically the nature of an option agreement and whether or not the parties
had complied with its terms.
[45]
The
Plaintiff submits that its claim is squarely within the jurisdiction of the
Federal Court. The Defendants’ reliance on the licence as a shield does not
preclude the Court from adjudicating upon the Plaintiff’s claim, which relates
exclusively to trade-mark and copyright and only incidentally to certain
related contractual matters. The Plaintiff submits that the Defendants’ request
that the claim be struck for want of jurisdiction be rejected.
[46]
As
regards the Defendants’ request for a stay, the Plaintiff submits that the discretionary
power to grant a stay ought only to be exercised in the clearest of cases. The
Defendants have not demonstrated there is any basis for justifying a stay of
the Federal Court action in favour of a non-existent Quebec Superior Court
action.
[47]
Nor
have the Defendants demonstrated that the continuance of this action in the
Federal Court would work an injustice because it would be oppressive, vexatious
or an abuse of process in some other way. Inconvenience to a party does not in
and of itself constitute sufficient special circumstances for the granting of a
stay or for the Court to assume or relinquish jurisdiction (Advanced
Emissions Technologies Ltd. v Dufort Testing Services Ltd., 2006 FC
794 at paragraphs 8-9; White v E.B.F. Manufacturing Ltd., 2001 FCT 713 [White]
at paragraph 5).
[48]
In
Innotech 2, the defendant requested a stay on the basis that a
provincial court would be able to adjudicate upon all the issues, including
reliance on a contract as a shield in the statement of defence and as a sword
in the counterclaim. The Court held that both courts could determine the
validity of the contract, but neither court could deal with all the remaining
issues between the parties at paragraphs 4-8:
The defendant’s basic argument is that the Court of
Queen’s Bench of Alberta can determine all issues relating to the licence
agreement whereas the Federal Court’s jurisdiction is limited. As to the
lateness of seeking this stay in proceedings that commenced in 1993, the
defendants say it was the plaintiff's delay in moving to strike the defendants’
counterclaim that caused the delay and they should not be held accountable for
the delay.
The stay application will be dismissed for the
following reasons. First, I do not think the defendants’ characterization of comprehensiveness
as between the Alberta Queen’s Bench and the Federal Court accurately describes
the situation in this case. According to the Federal Court of Appeal’s decision
of June 18, 1997, the Federal Court may decide the plaintiff’s patent infringement
action and incidental thereto, may consider “the licence, its existence, terms,
and validity”. The Federal Court may therefore decide, as fully as the Alberta
Queen’s Bench, questions relating to validity and subsistence insofar as the
licence is concerned.
What the Federal Court may not do is deal with the
relief to which the defendants may be entitled in the event it is determined
the licence is valid and subsisting. That will have to be pursued by the
defendants in their Alberta action.
However, the Alberta Court of Queen’s Bench will not
deal with the question of patent infringement (unless the plaintiff was to
counterclaim for patent infringement in the Alberta action, which it is not
obliged to do) and the parties will have to return to the Federal Court even if
this action is stayed pending the determination of the validity of the licence
agreement by the Alberta Court of Queen's Bench.
In the result, both the Alberta Court of Queen’s
Bench and the Federal Court may decide the question of validity and subsistence
respecting the licence, but neither court will deal with all remaining issues
between the parties. For this reason I do not accept the defendants
comprehensiveness argument.
[49]
The
Plaintiff submits that the reasoning in Innotech 2 is directly
applicable to the case at bar.
[50]
Further,
even if the Plaintiff were to counterclaim the hypothetical provincial court
action, the provincial court could only grant injunctive relief within the
province. The parties would have to return to Federal Court to get injunctive
relief on a national level (White).
[51]
Finally,
the Defendants have advanced a counterclaim in Federal Court and maintained the
position that they are entitled to request the relief sought therein from the
Federal Court. This is contradictory to their position that the Plaintiff’s
claim ought to be struck for want of jurisdiction. The Plaintiff submits that
the Defendants’ request for a stay ought to be rejected.
ANALYSIS
[52]
The
parties have, essentially, argued the same case before me that they argued
before Prothonotary Milczynski. There is no real ground for saying that the
questions raised before me on a refusal to strike are vital to the final issue
in the case (see Chrysler Canada Inc. v Canada, 2008 FC 1049 at
paragraph 4), or that the refusal to stay the action in this Court is vital to
the final issue, and the parties agreed on this at the hearing before me.
[53]
The
only issue before me is whether Prothonotary Milczynski’s decision should be
disturbed because it was clearly wrong for being based upon a wrong principle
or upon a misapprehension of the facts.
[54]
In
her reasoning and conclusions Prothonotary Milczynski relied upon and applied
well-recognized authorities (ITO, above, at paragraphs 29-30 and Innotech,
above) to conclude that the Plaintiff’s case is within the jurisdiction
of this Court even if, incidentally, some consideration will have to be given
to contractual issues.
[55]
The
Innotech case, above, at paragraphs 2-4, is very close to the case at
bar:
The statement of claim in this action
alleges infringement of the appellant’s patent by Phoenix and others. In its
statement of defence Phoenix alleged that it acted under a license and was
therefore not liable. It also filed a counterclaim seeking a declaration as to
the validity of the license, injunctions for its enforcement, and damages for
the alleged breach by the appellant of the license.
The learned motions judge concluded as
follows:
The
Statement of Claim alleges that infringement has taken place since these
defendants have, without permission or license, used the plaintiff’s patent. It
is, however, the defendants’ contention that their use of the invention was at
all times under a valid license. That pleading is central to their defence. It
also alleges that it is the plaintiff who has acted in breach of the terms of
the license, wherefore it is the defendants who will be entitled to the
customary kind of relief granted at trial, be it injunctive or monetary. In my
opinion, the Counterclaim does no more than particularize the basis of the
grievance claimed by the defendants. The license which forms the basis of the
Counterclaim is the same one that forms the basis of the defence of
non-infringement.
It
would therefore be inappropriate to microscopically sever the one pleading from
the other. The plaintiff’s application is therefore dismissed. Costs in the
cause.
With respect, it appears to us that although it
is the same license which is involved in both the statement of defence and the
counterclaim, it is invoked for a different purpose in each pleading. In the
statement of defence it is being used as a shield against a claim of
infringement. In the counterclaim it is being used as a sword, a basis for
obtaining remedies against the appellant for its enforcement. 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. Kellogg 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.
[56]
The
cases cited by the Defendants do not contradict this jurisprudence as regards
the basic principles applicable to this case, and they are entirely
distinguishable on their facts. Engineering Dynamic involved a
declaration of ownership of intellectual property and did not involve patent,
copyright or trademark infringement. Similarly, in Lawthier, the issue
was not infringement, but whether a patent had been reassigned to the plaintiff
by the defendant. The sole issue was contractual.
[57]
In
the present case, Prothonotary Milczynski correctly found that the Plaintiff’s
claims related exclusively to trademark and copyright infringement and that all
remedies sought by the Plaintiff arise under the Trade-marks Act or the Copyright
Act. Even if the Defendants admit to infringement of the Plaintiff’s
intellectual property right, this does not change the essential nature of the
claim or prevent this Court from dealing with ancillary contractual issues.
[58]
There
is nothing in the materials before me to suggest that Prothonotary Milczynski
misapprehended any relevant fact. Essentially, the Defendants argue before me
that, although the Prothonotary does have regard for the contractual issues in
her decision, she does not ask or address the question as to whether this is a
case that is really about contractual issues. A reading of the Decision as a
whole reveals that this issue is fully addressed. It is simply the Defendants’
view that the case will turn on contractual issues. In considering a motion to
strike under Rule 221, Prothonotary Milczynski must have regard to the
pleadings. Prothonotary Milczynski examined the pleadings in this case, and
determined that the claim is about trademark and copyright infringement.
Contractual issues will come into play – which is fairly typical – but this
does not exclude the Court’s jurisdiction. The fact that the Defendants are of
the view that contractual issues will decide the matter is nothing more than
the Defendants’ view. In any event, there is no privity of contract between the
Plaintiff and the Defendant, Karma Candy Inc.
[59]
In
submissions before me, the Defendants concede that the counterclaim is beyond
the jurisdiction of this Court. As the case law reveals, however, that is not a
ground for excluding the Plaintiff from this Court for its intellectual
property infringement claim. I agree with the Plaintiff that to find the Court
did not have jurisdiction would be extraordinary because, at least on the
pleadings, there is nothing a-typical about this case.
[60]
The
request for a stay was also appropriately refused by the Prothonotary. The
situation in Innotech 2, above, bears a striking resemblance to the
present situation. The stay request was rejected by Justice Rothstein, as the
claimed “comprehensiveness” argument was held to be unconvincing. The Court
held that both the Federal and Provincial Courts could determine the validity
of the contract, but neither Court would deal with all remaining issues. Mr.
Justice Rothstein wrote:
The defendant’s basic argument is that the Court of
Queen’s Bench of Alberta can determine all issues relating to the licence
agreement whereas the Federal Court’s jurisdiction is limited. […]
The stay application will be dismissed for the following
reasons. First, I do not think the defendants’ characterization of
comprehensiveness as between the Alberta Queen’s Bench and the Federal Court
accurately describes the situation in this case. According to the Federal Court
of Appeal’s decision of June 18, 1997 [reported 74 C.P.R. (3d) 275], the
Federal Court may decide the plaintiff’s patent infringement action and
incidental thereto, may consider “the licence, its existence, terms, and
validity”. The Federal Court may therefore decide, as fully as the Alberta
Queen’s Bench, questions relating to validity and subsistence insofar as the
licence is concerned.
[61]
As
the Plaintiff points out, even if they were to counterclaim in the hypothetical
provincial court action, which the Defendants have stated they have no
intention of starting, the provincial court could only grant injunctive relief
within the province. To adjudicate the issue of an injunction on a national
scale, the parties would have to return to the Federal Court.
[62]
The
Plaintiff’s claim includes a second Ontario-based Defendant, Karma Candy Inc.
The Plaintiff remains fully entitled to prosecute that claim in this Court, and
it would be inappropriate to require the Plaintiff to pursue that claim in
other jurisdictions, such as Quebec. Comprehensive relief for the Plaintiff is
best available in the Federal Court.
[63]
The
principles for a stay in this context are set out in White, above, at
paragraph 5:
Paragraph
50(1)(a) of the Act provides that the Court may in its discretion stay
proceedings in any cause or matter on the ground that the claim is being
proceeded within another Court or jurisdiction. The jurisprudence in the matter
has established several useful criteria to determine whether such a stay should
be granted. (Discreet Logic Inc. v. Canada (Registrar of Copyrights)
1993 CarswellNat 1930, 51 C.P.R. (3d) 191, affirmed (1994), 55 C.P.R. (3d) 167
(Fed. C.A.); Plibrico (Canada) Limited v. Combustion Engineering Canada Inc.,
30 C.P.R. (3d) 312 at page 315; Ass'n of Parents Support Groups v. York,
14 C.P.R. (3d) 263; Compulife Software Inc. v. Compuoffice Software Inc.,
1997 CarswellNat 2482, 77 C.P.R. (3d) 451, 143 F.T.R. 19; 94272 Canada Ltd.
v. Moffatt, 31 C.P.R. (3d) 95 and General Foods v. Struthers, [1974]
S.C.R. 98). They are abridged and assembled as follows for convenience.
1. Would
the continuation of the action cause prejudice or injustice (not merely
inconvenience or extra expense) to the defendant?
2. Would
the stay work an injustice to the plaintiff?
3. The
onus is on the party which seeks a stay to establish that these two conditions
are met;
4. The
grant or refusal of the stay is within the discretionary power of the judge;
5. The
power to grant a stay may only be exercised sparingly and in the clearest of
cases;
6. Are
the facts alleged, the legal issues involved and the relief sought similar in
both actions?
7. What
are the possibilities of inconsistent findings in both Courts?
8. Until
there is a risk of imminent adjudication in the two different forums, the Court
should be very reluctant to interfere with any litigant’s right of access to
another jurisdiction;
9. Priority
ought not necessarily be given to the first proceeding over the second one or,
vice versa.
[64]
In
my view, the Defendants the present case have not satisfied any of these
factors. In particular, there can be no possibility of inconsistent findings
when the Defendants have not undertaken an action in any other jurisdiction and
there is no indication they ever will.
[65]
Even
if an alternative action were started in the future, the words in White,
above, at paragraphs 11 and 12, would still apply:
In my view, the continuation of this
action in the Federal Court would not cause prejudice to the defendants. Of
course, it may result in extra expenses and further inconvenience to the
defendants, but these matters can always be remedied by way of costs. The power
to grant a stay may indeed only be exercised sparingly and in the clearest of
cases: this is not an obvious case favouring a stay. There are two egregious
differences between the Nova Scotia proceedings and the Federal Court
proceedings: three defendants have been added to the federal case and the
plaintiff now seeks injunctive relief on a national scale in his federal
action. Even if the factual situation and some of the legal issues may be
similar in both actions, the relief sought is different.
As to the possibilities of
inconsistent findings in the two Courts, it is to be expected that the
plaintiff will concentrate on his federal injunctive relief before obtaining a
judgment from the Nova Scotia Court. There is no risk of imminent adjudication
in the two different forums and, in that sense, it would be premature for me to
interfere with the plaintiff's right of access to the Federal Court. It is
presumed that he is now more interested in seeking a national injunction and
will conduct himself accordingly.
[66]
There
was nothing before Prothonotary Milczynski, and there is nothing before me, to
suggest that a stay should be considered in this case.
[67]
In
conclusion, there is no indication that Prothonotary Milczynski’s decision was
based upon a wrong principle or upon a misapprehension of the facts. I am
entirely in agreement with it.
ORDER
THIS
COURT ORDERS that
1.
The
appeal is dismissed.
2.
The
parties are at liberty to address the Court on the issue of costs and should do
so, initially at least, in writing.
“James Russell”
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