Date: 20210601

Docket: T-40-18

Citation: 2021 FC 515

Fredericton, New Brunswick, June 1, 2021

PRESENT: Madam Justice McDonald

BETWEEN:

PAID SEARCH ENGINE TOOLS, LLC

Plaintiff/

Defendant by Counterclaim

and

GOOGLE CANADA CORPORATION, GOOGLE LLC AND ALPHABET INC.

Defendants/

Plaintiffs by Counterclaim

ORDER AND REASONS

[1] On this Motion, the Plaintiff, Paid Search Engine Tools, LLC (PSET) seeks an Order pursuant to Rule 227 requiring the Defendants (Google) “to produce an accurate and complete affidavit of documents” containing the following:

1. Documents that assess, report on, discuss, or otherwise disclose the actual or potential impact/effect/change to the Defendants’ revenues and/or profits, including the RASTA reports, resulting from:

• (i) The use of a generalized second price auction, including any variants;
• (ii) The use of a generalized first price auction, including any variants;
• (iii) The use of other auction models and mechanisms, including a VCG, and including any variants;
• (iv) The use of a cost per click (CPC) pricing model;
• (v) The use of CPM or CPA pricing models;
• (vi) Demographic targeting of users; and
• (vii) Changes based on quality and relevance of advertisements

1. The Defendant’s knowledge, information and belief as to the above.

[2] Alternatively, PSET seeks an Order to cross-examine Google on their affidavit of documents.

I. Background

[3] In its Statement of Claim, PSET alleges that Google’s “AdWords” infringes its 2,416,167 Patent (167 Patent). The 167 Patent generally relates to a system and process for managing the cost of advertising through an internet search engine. PSET seeks damages in the form of an accounting of Google’s profits and/or a reasonable royalty for infringement.

[4] In its Defence and Counterclaim, Google alleges that the 167 Patent is invalid and not infringed. Alternatively, Google alleges that if infringement is established, no damages are payable as Google had non-infringing methods and systems.

[5] The issue raised on this Motion relates specifically to Google’s evidence on the non-infringing alternatives. PSET claims that Google has taken a new position on this issue as reflected in their Amended Defence and the opinions of Google’s experts in their recently served reports.

[6] In its original Statement of Defence and Counterclaim filed on November 12, 2018, Google states as follows at paragraph 18:

18. …Google denies that PSET has suffered any damage as a result of any alleged infringement, or other allegedly unlawful activity of Google and denies that PSET is entitled to an accounting of any profits as a result of the alleged infringement. In this regard, (i) non-infringing methods and systems manage bids were and are a true substitute and real alternative to any allegedly infringing method or system of Google’s, (ii) such alternative methods and systems were and are economically viable, (iii) as of the time of alleged infringement, Google could have made, implemented, and used such non-infringing methods and systems, and (iv) Google would have actually made, implemented, and used such non-infringing methods and systems.

[7] In its March 11, 2021 Amended Defence Google made the following addition to paragraph 18:

18. …In addition or in the alternative, such non-infringing methods and systems establish a non-infringing baseline. Google would have earned at least the same profit had the non-infringing methods and systems been implemented, including, at least, using other payment models other than cost-per-click, using a first price auction, and using a VCG auction.

[8] PSET also points to the reports of Goggle’s Experts, Steven Tadelis and Christopher Bakewell, filed on April 7, 2021, who provide opinions on non-infringing alternatives. According to PSET, the experts rely on undisclosed information in their reports.

[9] To date, the parties have conducted two rounds of oral discovery and written examinations for discovery. Google argues that PSET has had the opportunity to fully canvass the issue of non-infringing alternatives.

[10] PSET suggests that Google has obfuscated on this issue and is now attempting to introduce through experts information that was not otherwise disclosed.

[11] The trial in this matter is scheduled to begin on June 14, 2021.

II. Federal Courts Rules

[12] PSET requests a further and better Affidavit of Documents pursuant to Rule 227 of the Federal Courts Rules which states:

Sanctions

227 On motion, where the Court is satisfied that an affidavit of documents is inaccurate or deficient, the Court may inspect any document that may be relevant and may order that

(a) the deponent of the affidavit be cross-examined;

(b) an accurate or complete affidavit be served and filed;

(c) all or part of the pleadings of the party on behalf of whom the affidavit was made be struck out; or

(d) that the party on behalf of whom the affidavit was made pay costs.

III. Analysis

[13] The parties first exchanged their Affidavits of Documents in 2019. Since then, Google has provided further documentary production on July 8, 2020; July 10, 2020; December 10, 2020 and May 20, 2021. However, Goggle has not served a re-sworn or re-affirmed Affidavit of Documents to reflect these additional productions.

[14] The relevant considerations on this Rule 227 Motion are addressed in Hutton v Sayat, 2020 FC 1183. While I acknowledge that the facts in Hutton are distinguishable, the general principles outlined at paragraphs 32 and 33 are nonetheless applicable:

[32] On a motion to compel a further and better affidavit of documents, the burden is on the moving party to show that (i) further documents likely exist; (ii) that these documents might reasonably be supposed to contain information which might directly or indirectly enable the moving party to advance its own case or to damage the case of its adversary, or which might fairly lead the moving party to train of inquiry that could have either of these consequences; and (iii) that the opposing party had them in its power, possession or control or is aware that they are in some other party’s power, possession or control.

[33] With respect to the requirement on the moving party to demonstrate that further documents likely exist, the moving party must have some persuasive evidence that documents are available and have not been produced, rather than mere speculation, intuition or guesswork: Havana House Cigar & Tobacco Merchants Ltd et al v Naeini (1998), 1998 CanLII 7605 (FC), 80 CPR (3d) 132 at para 19. The Defendants were under no obligation to provide their own evidence to be considered by the Court in contrast to that of the Plaintiff. The burden was on him to make his case.

[15] I disagree with Google’s characterization that PSET has a “heavy burden” under Rule 227; however, PSET does have the burden discussed in Hutton above. Specifically, PSET must be able to show that further documents “likely” exist.

[16] In support of its argument that further documents “must” exist, PSET points to the public comments of Google’s former CEO, Eric Schmidt, in which he stated that a change from a static bidding system to the AdWords system resulted in a ten-fold increase to Google’s revenues. This is not a new issue and was addressed at Discovery. In response to a discovery undertaking Google replied that it had made reasonable inquiries and “was unable to locate any information confirming the specific basis of this statement was located.” In my view, this issue has been canvassed and the corresponding undertaking has been answered. Google’s response will preclude Google from introducing any evidence otherwise at trial.

[17] PSET also points to the Discovery evidence of a Google witness who answered as follows regarding a question on VCG: “I think we have done an assessment on that text.” An undertaking was provided by Google to provide any relevant documents and I understand that Google has produced the documents that were located. Accordingly, the VCG issue is not new and has been addressed through the discovery process.

[18] PSET asks the Court to draw an inference that Google would have regularly and fully analyzed its advertisement models and therefore reports must have been created. PSET points to the RASTA reports as a basis to argue that further such documents likely exist. The issue of the RASTA reports were addressed through Discovery. In my view, PSET arguments on this issue are largely speculative and do not meet the test that documents “likely” exist.

[19] Google argues that some of the issues raised in this Motion were previously addressed by Case Management Judge Aylen in a Motion by PSET to compel Google to answer discovery questions on non-infringing alternatives. For example, her Order of May 22, 2020, states in part:

[61] Item 57 seeks information regarding Google’s allegation that it would have used a non-infringing alternative. While Google has advised what non-infringing technology it would have developed, Google has refused to advise how long that would have taken and at what cost. Google asserts that these latter questions improperly seek an opinion. I disagree. While ultimately this issue may be addressed in an expert report, any expert opinion will be based on the cost and timing/effort information furnished by Google. Google shall accordingly answer these questions.

[63] Item 59 seeks information as to any non-infringing alternatives that Google has developed for its AdWords products when it was unable to get a license. I find that this question lacks relevance and is overly broad, as it applies to any aspect of AdWords (not simply those in dispute in this proceeding) and in relation to any jurisdiction.

[20] Although PSET acknowledges that Rule248prevents Google from leading evidence at trial on any question it has refused in discovery, it argues that opinion of Google’s experts supports a strong inference that further documents or information exists on Google’s use of or assessment of different auction mechanisms.

[21] Google’s experts, Dr. Tadelis and Mr. Bakewell, both provide opinions on non-infringing alternatives. With respect to their reports, I note that both experts list the documentary evidence they consulted. In addition, both experts allude to having obtained information directly from Google employees and representatives. The Tadelis Report states in the footnote to paragraph 14: “I have also spoken to Google employees regarding their experience.” Similarly, the Backwell Report at paragraph 25 states: “I also interviewed representatives of Google.”

[22] PSET argues that these comments raise concerns that Google may attempt to lead evidence through fact witnesses on non-infringing alternatives that has not been disclosed. However, and considering this Motion, if those circumstances arise at trial, they it will be addressed at that time with the options of either disallowing the evidence or granting an adjournment with the appropriate cost consequences.

[23] I would also note that if it is established that Google’s experts’ opinions on non-infringing alternatives are without an evidentiary foundation, the opinions will be weighed accordingly. Likewise, if the experts rely upon hearsay evidence in support of opinions on non-infringing alternatives, the Court will not permit that evidence.

[24] The comments of Justice LeBlanc in Sibomana v Canada, 2018 FC 43, regarding the proper use of Rule 227 are equally applicable here; he states:

[34] A party’s mere desire to confirm that the affidavit filed by the opposing party is accurate and complete is insufficient to trigger the application of Rule 227. Further, the moving party that has [TRANSLATION] ‘the burden to submit convincing evidence to demonstrate that available documents exist but were not produced’ must also explain how the documents they are seeking to have added to the affidavit are relevant to the dispute [citations omitted].

[35] That was not demonstrated. Rule 227, which is the only one that allows the Court to intervene in the filing of affidavits of documents, was not intended to allow for fishing expeditions to be done in the opposing party’s records in the hope of possibly finding something that would support the argument put forth. Other mechanisms that are not governed by the rules of relevance or judicial law can be used to this end.

[25] Overall, I am not convinced that PSET has demonstrated with convincing evidence that documents likely exist. I do not view the amendments to paragraph 18 of Google’s defence as raising a new issue. Rather, it appears to be an attempt to bring Google’s position in line with the Federal Court of Appeal decision in Nova Chemicals Corporation v Dow Chemicals Company, 2020 FCA 141. Nor am I convinced that the expert reports allow the drawing of an inference that there are other documents or information relating to non-infringing alternatives.

[26] Although I am dismissing PSET’s Rule 227 Motion for a further and better Affidavit of Documents, I will Order that Google serve PSET with a current sworn or affirmed Affidavit of Documents within five (5) days of the date of this Order.

ORDER IN T-40-18

THIS COURT ORDERS that:

1. The Plaintiff’s Rule 227 Motion for a further and better Affidavit of Documents is dismissed;

2. Google is to serve PSET with a current sworn or affirmed Affidavit of Documents within five (5) days of the date of this Order; and

3. Costs shall be in the cause.

"Ann Marie McDonald"

Judge

FEDERAL COURT

SOLICITORS OF RECORD

DOCKET:

T-40-18

STYLE OF CAUSE:

PAID SEARCH ENGINE TOOLS, LLC v GOOGLE CANADA CORPORATION, GOOGLE LLC AND ALPHABET INC.

PLACE OF HEARING:

HELD BY VIDEOCONFERENCE

DATE OF HEARING:

MAY 26, 2021

ORDER AND reasons:

MCdonald J.

DATED:

june 1, 2021

APPEARANCES:

Marcus Klee

Devin Doyle

Scott Beeser

Jonathan Stainsby

Jonathan Giraldi

For The PLAINTIFF

Christopher Van Barr

Alex Gloor

Marc Richard

Charlotte McDonald

For The DEFENDANTS

SOLICITORS OF RECORD:

AITKEN KLEE LLP

Ottawa, Ontario

For The PLAINTIFF

Gowling WLG (Canada) LLP

Ottawa, Ontario

For The DEFENDANTS