Canada: Encouraging cost award trend emerging

Enforcement of IP rights can sometimes culminate in litigation. In Canada, as in most jurisdictions, litigation related to IP is rarely inexpensive, with significant costs incurred for both counsel fees and for disbursements as varied as travel, scientific testing and the engagement of expert witnesses. Fortunately, in Canada successful parties are generally entitled to compensation for the costs of bringing their case. Indeed, most IP litigation in Canada occurs in the Federal Courts which have recently evinced an increasing willingness to ensure the adequacy of that compensation even in the most complex cases.

Canada's various courts usually provide some scheme for awarding costs. In the Federal Courts, cost awards include a component compensating for a portion of counsel fees and a component for reasonable and necessary disbursements. The fee component usually follows a tariff which sets out a range of set amounts for particular litigation activities and is intended to provide predictability while also accommodating varying degrees of case complexity. The fixed amounts are usually lower than actual costs and can be viewed as a compromise between compensating a successful party and not unduly burdening the other side.

The court is not, however, bound to apply the tariff and can choose to substitute a lump sum award proportionate to the counsel fees actually incurred by the prevailing party. Nonetheless, the tariff has typically been followed historically, with the complexity of cases such as those involving patents reflected in an award tending toward the higher end of the tariff.

Recently, however, a trend appears to be emerging where the Federal Court is shifting towards awarding lump sum costs that are higher than provided for under the tariff. The recent case of The Dow Chemical Company v Nova Chemical Corporation offers a prime example.

In that case, Dow alleged that the manufacture of certain polymers by Nova infringed a patent held by Dow. Nova counterclaimed alleging the patent was invalid. Ultimately, the court held that Dow's patent was both valid and infringed and that Dow was therefore entitled to remedies and an award of costs. In determining the latter, the Court considered the tariff but found that even its highest end would be "totally inadequate" in the circumstances of the case. The Court thus declined to follow the tariff and instead awarded Dow costs of C$6.5 million ($5 million), including a lump sum of C$2.9 million for legal fees and a further C$3.6 million for reasonable and necessary disbursements including certain in-house testing. The fee award was particularly significant and amounted to approximately 30% of Dow's actual counsel fees. The cost award was upheld on appeal.

This emerging trend is encouraging and may be an indication of a new willingness on the part of Canada's courts to provide adequate compensation for costs incurred by successful litigants in complex litigation such as the enforcement of IP rights.

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