The costs of litigation in Canada follow the general principle that the "loser pays," meaning the successful party is able to recover some of the fees required to bring or defend the action. While a simple concept, the approach is complex and continually evolving. 

Historically, costs in the Federal Court were based on Tariff B of the Federal Courts Rules. The Tariff sets a range of values for various steps in a proceeding, providing the quantum of costs. The Federal Court has recognized, however, that the Tariff no longer provides adequate level of partial indemnification, particularly in intellectual property cases.

Because of this, costs are now typically awarded as a "lump sum", based on the successful party's legal fees. But this is not a blank cheque: the Court requires fees to be "reasonable" in the circumstances. The Court has also taken different views in different cases regarding the proportion of fees awarded as costs. As a result, costs submissions are often the subject of significant dispute.

The increased prevalence of lump sum fee awards

Lump sum costs are not new to the Federal Court; the Rules have provided that possibility for a long time. However, lump sums gained increased traction following the 2017 decision in Dow v Nova, 1  where the Federal Court of Appeal approved the application of a lump sum based on a percentage of fees incurred by the successful party. In doing so, the Federal Court of Appeal highlighted the disparity between the Tariff and the actual cost of litigating intellectual property cases, especially for patent infringement or impeachment.

Lump sums have since become more prevalent, but their application remains varied. Significant discretion is given to the Court to determine appropriate costs awards. In awarding a lump sum based on fees over the Tariff, the Court is recognising the disparity between Tariff amounts and the actual costs of litigating complex cases. In multiple instances, an award under the Tariff could be less than 10% of the actual fees incurred by the successful party. By bringing the compensation more in line with actual fees, lump sum costs better embody the principle of costs awards – the efficient and effective conduct of legal proceedings.

Since 2015, the Federal Court has awarded lump sum costs following a full decision on the merits in at least 20 cases involving substantive intellectual property disputes. While some decisions continue to apply the Tariff for costs awards, the Federal Court is trending towards lump-sum costs as the common approach.

Notably, the award of a lump sum based on fees has been found appropriate where the parties are "sophisticated commercial entities". This, in part, explains why more patent and trademark cases have seen lump sum costs awards, as cases that make it to decisions on the merits more often involve larger or more sophisticated litigants. However, the Federal Court has also recently used that fact to award lump sum costs based on a percentage of fees in a copyright case, where such costs awards have so far been less prevalent.2

In doing so, the Court attempts to balance the costs of litigation in situations where large corporations are involved, as opposed to proceedings involving small entities or individual inventors. This aligns with the overall "access to justice" purview of the Court, and the recognition that reliance on intellectual property rights should not be denied to parties who lack the "deep pockets" that may be found on the other side.

The "starting point" for lump sum awards

In Dow v Nova, the Federal Court of Appeal indicated that a successful party may be able to recover a lump sum of 25-50% of its legal fees. Determining the proper amount (potentially leading to higher or lower percentages) is fact specific, and there is no "default" rate specified. While the Federal Court has issued more lump sum costs awards based on a percentage of fees, there has been a variety of approaches in determining the percentage applied.

In several instances, the Court set a percentage based on its assessment of the proceeding's complexity. This has led to a vast range, from as low as 14% to as high as 50%. The average, however, is typically closer to 30% of the successful party's fees. While there continues to be substantial debate between parties as to the percentage of fees to use, some decisions have attempted to approach the process from a more formulistic approach.

In at least two more recent decisions, Seedlings3 and Bauer 4, the Court chose 25% as a "starting point" for the analysis, following which the specifics of the action were reviewed to determine if an increase or decrease to this percentage was warranted. Meanwhile, in Allergan v Sandoz5, the Court chose the midpoint of the 25-50% range as the "starting point", before again determining if an adjustment was necessary.

The choice of "starting point" or "default" percent recovery is only a part of the analysis. Whether or not the Court uses a "starting point" for the analysis, the Court looks to the complexity of the issues, the conduct of the parties, and the overall history of the case in arriving at an appropriate percent recovery.

The impact of "partial success" by a party

The successful party to an action does not necessarily succeed on all issues in dispute. This is especially true in patent actions, where issues of infringement and invalidity are often highly intertwined with the overall claims construction provided to the patent.

In awarding costs, the Court will typically look at which party achieved overall success in the action, rather than success on each of the individual issues. However, the impact of these other issues on the proceeding is often still relevant in determining costs.

In keeping with the overall principles of costs, lump sum awards promote efficient litigation and narrowing of disputes to the main issues. While some Judges have declined to adjust or offset awards based on partial success on some issues, this is not a consistent application. The Court may consider the lack of success on some issues in determining either the percentage of fees recovered or the "reasonable" fees to which this percentage is applied.

Notably, parties who raise excessive issues may find themselves successful overall, but facing costs consequences for the time and expenses associated with unwarranted positions. The early resolution of issues, and focusing of the case on the key issues in dispute, not only trends towards lower fees overall, but has been encouraged by the Court in assessing the reasonableness of various fees.

The important role of offers to settle

One purpose of costs awards is to encourage settlement before trial. The Federal Courts Rules provide a mechanism to reward a party for offering to settle the proceeding, if that offer is not accepted and that party ultimately obtains a better result at trial. The Court, however, looks for such offers to contain a compromise. As with costs awards generally, determining whether an offer is a genuine compromise, or if the result at trial is "better" than the offer, is fact specific.

In Bauer6, the Court doubled the percentage recovery for the period after the defendant's offer to settle. The Court concluded that the payment offered for settlement was a genuine compromise, notwithstanding that the amount sought in the case overall was much greater. The Court pointed to a defensible line of reasoning and justification for the amount offered.

In Allergan v Sandoz7, an action under the Patented Medicines (Notice of Compliance) Regulations, the Court declined to account for an offer to settle by Sandoz which included, as a compromise, a waiver of its claim for section 8 damages,8 in lieu of discontinuing the proceeding and providing a time-dependent payment by Allergan to Sandoz. The Court declined to give effect to the "wavier" of section 8 damages on the basis that there was no evidence to determine if this was in fact a compromise; there was no way of knowing what amount Sandoz might be entitled to in a section 8 proceeding (if anything at all).

The Court did, however, account for another offer to settle where Sandoz offered a small payment of $50,000. The Court did not agree with Allergan's suggestion that this was a "demand to surrender" and not a compromise, given the small amount at issue and the litigation expenses incurred. This is similar to the Court's decision in Camso9, where the Court recognized a "walk away" offer that would have both parties discontinue their claims (one for infringement and the other for invalidity) on a without costs basis.

Ultimately, the case law highlights the importance the Court places on offers to settle, and the important cost consequences that flow from failing to accept an offer that would have been better than the decision at trial. It is notable that the offer must be sufficiently quantifiable that it can be properly considered a "compromise". Such offers may benefit from detailed justification of the amount provided rather than just offering a flat amount without discussion.

Conduct of the parties

In addition to setting a percentage for recovery of legal fees, the base fees the percentage is applied against will be reviewed by the Court to determine if the fees were reasonable in the circumstances. Given the broad discretion of the Court in determining costs, a wide variety of facts are available to otherwise "adjust" or "discount" the base legal fees for which recovery is sought.

When assessing the total legal fees incurred by the successful party, the Court is hesitant to second-guess the expenses. However, the Court will often look at the total amount spent in relation to the size of the claim. Where the unsuccessful party alleges the successful party's legal fees were too high and unreasonable, the unsuccessful party may need to submit their own fees for comparison.

The most common adjustment to legal fees is for having caused unnecessary complication or duplication. For example, late production of information that required a shift or adjustment by a party can result in a reduction in fees to offset the extra work incurred by the unsuccessful party. In other instances, the Court may feel that the total fees incurred were excessive, and impose a cap or reduction to some or all of the categories claimed.

Notably, the Court has cautioned that this exercise should not be double-counted in the costs analysis. Where the conduct of a party has been used to reduce the percentage applied, it normally will not be further used to reduce the base amount of fees. However, given the Court's broad discretion, there is no "routine" procedure; the same factors about the conduct of a party could be applied either against the percentage recovery sought, or to the base legal fees.

Recovery of disbursements

A successful party can also recover the disbursements it incurred for the purposes of the case. Items, like printing and shipping costs, Court fees, expert charges, and travel, are equally subject to review by the Court to assess if they were "reasonably incurred."

The most significant adjustment made to a party's disbursements often apply to travel and to expert disbursements. The Court has begun highlighting the significant cost of experts in intellectual property matters, and has discounted these fees in several instances to keep these expenses from becoming disproportionate to the issues in dispute.

There are multiple reasons for adjusting an experts fees, however the most common involve:

  • Reducing an expert's hourly rate to align more closely with senior trial counsel, or to otherwise align with other experts addressing the same issue;
  • Discounting the fees overall due to duplication of issues between multiple experts;
  • Reducing expenses associated with an expert who attends trial to observe evidence unless the evidence is central to their opinion; or
  • Discounting expert fees where the issue addressed by the expert was of no assistance to the Court.

In addition to reviewing expert fees, the Court will often scrutinize travel expenses. Typically, travel fees are only available for economy-class flights, and "reasonable" hotel accommodations associated with the case. In Allergan v Sandoz10 the Court allowed business-class flights taken by the inventors given they were travelling from Japan. The Court did, however, reduce the recoverable hotel fees to more closely align with the number of discovery days for each inventor.

Also, if the Court adjusted or reduced the base fees for quantifying costs because of unnecessary steps taken, or because too many counsels were involved, the Court may decline to award disbursement that correspond to such reductions.

Conclusion

Despite a number of decisions on costs, the unifying element is their fact-specific application. The decisions are often brief, avoiding detailed discussion of confidential information, and routinely impacted by the Court's knowledge of the detailed procedure and history of the case that does not always come through to an outside perspective.

In all, the Federal Court is relying upon costs to effect the overarching goals of litigation – efficient and cooperative resolution of the main issues in dispute between the parties. Taking steps to streamline and focus the case on the main issues will assist a party in recovering the greatest amount of its legal fees.

Footnotes

1 Nova Chemicals Corporation v. Dow Chemical Company, 2017 FCA 25.

2 Rogers Communications Canada Inc. v SOCAN, 2021 FC 207.

3 Seedlings Life Science Ventures, LLC v Pfizer Canada ULC, 2020 FC 505.

4 Bauer Hockey Ltd v Sport Maska Inc (CCM Hockey), 2020 FC 862.

5 Allergan Inc. v. Sandoz Canada Inc., 2021 FC 186.

6 Supra, note 2.

7 Supra, note 3.

8 In actions commenced under the Patented Medicines (Notice of Compliance) Regulations, if the defendant successfully defends the action and it was delayed in entering the market as a result of the action commenced under the Regulations, section 8 of the Regulations provides the ability, in certain circumstances, for that defendant to commence a subsequent action for damages on account of the delayed market entry.

9 Camso Inc. v Saucy International, 2019 FC 816.

10 Supra, note 3.

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