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16 November 2020
Every IP litigant has the same questions on their mind: "If I win, how much of my legal costs can I recover? And if I lose, how much will I have to pay?" These are important questions, and the answers now may be different than they were a few years ago.
At the conclusion of an IP litigation matter, the losing party must typically pay a portion of the winner's costs. This practice is intended to serve three primary functions – namely:
Although the amount of costs that can be recovered depends on several factors, the Canadian courts have shown a recent trend towards higher awards.
Most Canadian IP cases, including patent, trademark and copyright infringement actions, are litigated in the Federal Court. A successful litigant in the Federal Court (be it plaintiff or defendant) is typically entitled to recover some of its legal costs from the unsuccessful party. A costs award has two components:
The fee component compensates the successful party for a portion of its lawyers' fees. By default, fees are calculated using a tariff in the Federal Courts Rules, which assigns a fixed amount (or a range of amounts) for various steps in the litigation (eg, pleadings, motions, discovery and attendance at trial). The tariff ensures a degree of consistency between similar cases.
However, recently, the Federal Court has increasingly recognised that using the tariff results in costs awards that are "significantly lower than the prevailing party's actual outlays".(1) Consequently, the Federal Court has increasingly been awarding lump sum costs representing a percentage of the actual legal fees reasonably incurred by the successful party. This approach allows the awards to better reflect the party's actual expenditures. It also relieves the court and the parties from a granular analysis of legal fees, thus helping to ensure that the calculation of costs itself does not become a lengthy and expensive process.
Lump sum awards tend to be between 25% and 35% of a party's actual fees. However, there are cases where a higher or lower percentage is used. For example, the court may award a higher amount if one party engaged in conduct that unnecessarily lengthened or complicated the proceedings or refused a settlement offer that ended up being more favourable than the final judgment. The court has a broad discretion over the amount of costs.
In extraordinary circumstances, the Federal Court may also award 'solicitor-client' costs, which allows the successful party to recover 100% of its fees. However, these awards are rare.
To date, the highest reported Federal Court costs award is the C$6.5M award in Dow v Nova, which represented 30% of the successful party's actual fees following a lengthy and complex patent infringement trial.(2)
Disbursements compensate the successful party for various expenses associated with the litigation other than lawyers' fees. For example, these can include:
The successful party is typically entitled to fully recover all reasonable disbursements, although disputes can often arise as to whether the claimed disbursements are 'reasonable'.
Although IP-related disputes are most often litigated in the Federal Court, many types of IP disputes can also be brought in the provincial courts.
As in the Federal Court, the provincial courts usually award costs to the successful party. However, the amounts can be different.
Historically, most provincial courts calculated costs using a formulaic approach, similar to the Federal Court's tariff. However, many years ago, most of the provincial courts shifted away from this approach, and instead started classifying costs awards into three categories: partial, substantial or full indemnity.
Partial indemnity is the default. In Ontario, partial indemnity costs can often range from 50% to 70% of the costs actually incurred. However, the courts award a higher or lower percentage, based on a number of factors including the complexity of the proceeding, the importance of the issues, the conduct of the parties and the amount that an unsuccessful party could reasonably expect to pay.
In limited circumstances, the courts may award substantial indemnity costs. For example, this can arise where a settlement offer was made, but not accepted, or where the losing party engaged in 'reprehensible' conduct. In Ontario, substantial indemnity costs are calculated by multiplying the partial indemnity costs that would have been awarded by 1.5.
Full indemnity costs (also referred to as solicitor-client costs), which allow the successful party to recover 100% of its costs, are also available in some provinces. However, the courts grant these awards only in exceptional circumstances. For example, full indemnity costs may be awarded where the court considers that justice can be done only by way of complete indemnification, or where a party is entitled to full recovery under an indemnity agreement.
Canada's evolving costs regime in the IP litigation context raises important considerations for litigants. It is becoming more common, arguably the norm, for IP litigants in both the federal and provincial courts to recover significant costs awards. These enhanced cost consequences may amplify the significance of the strategic decisions that are made during the course of litigation, including, for example, whether to seek settlement and the appropriate time to do so.
For further information on this topic please contact Daniel Davies or Matthew Burt at Smart & Biggar/Fetherstonhaugh by telephone (+1 613 232 2486) or email (firstname.lastname@example.org or email@example.com). The Smart & Biggar/Fetherstonhaugh website can be accessed at www.smart-biggar.ca.
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