SUPERIOR COURT OF JUSTICE – ONTARIO

COURT FILE NO.: CV-08-00355689
DATE: 20151023

RE: ORTHOARM INCORPORATED, Plaintiff

AND:

GAC INTERNATIONAL, LLC, Defendant

BEFORE: Justice W. Matheson

COUNSEL: Gary Luftspring and Andrea Sanche, for the Plaintiff

J. Alan Aucoin and Tariq Remtulla, for the Defendant

HEARD: In writing.

COSTS Endorsement

[1] This action arose from an alleged breach of the obligation to pay royalties to the plaintiff under a Licence Agreement. OrthoArm claimed unsuccessfully that certain orthodontic brackets marketed and sold by GAC – the Accused Products – were covered by OrthoArm’s 715 Patent.[^1] If they were, royalties were payable under the Licence Agreement between them.

[2] As a result of a motion to consolidate this action with a related action, an order was made that the trial of this action would address certain issues and other issues would be determined at a later stage.

[3] By my decision released August 13, 2015, the issues for trial were decided, including the decision that the Accused Products were not covered by the 715 Patent and are therefore not covered by the Licence Agreement. OrthoArm was unsuccessful.

[4] GAC, as the successful party, seeks partial indemnity costs as follows: $468,915.20 for fees, $107,688.83 for disbursements and $60,958.98 for HST, totaling $637,563.01.

[5] OrthoArm does not dispute GAC’s general entitlement to partial indemnity costs, but submits that a more reasonable assessment of the partial indemnity costs of this action is $114,350 for fees, $68,121.86 for disbursements and $14,865.50 in taxes, totaling $197,337.36. By way of comparison, it has provided its bill of costs and supporting material, which totals about $310,000 for its actual costs and about $209,000 on a partial indemnity basis, all inclusive.

Applicable cost principles

[6] The general principles applicable to party and party costs are well settled. Costs are discretionary. Rule 57.01 of the Rules of Civil Procedure sets out factors I may consider in exercising my discretion, in addition to the result of the proceeding and any written offers to settle. Overall, the objective is to fix an amount that is fair and reasonable, having regard for, among other things, the expectations of the parties concerning the quantum of costs: Boucher v. Public Accountants Council for the Province of Ontario, 2004 14579 (ON CA), [2004] O.J. No. 2634, 71 O.R. (3d) 291 (C.A.) at paras. 26, 38.

[7] Certain general principles have now been expressly articulated in subparagraphs (0.a) and (0.b) of Rule 57.01, specifically the principle of indemnity and the affirmative obligation to consider the amount of costs than an unsuccessful party could reasonably expect to pay in relation to the step in the proceeding for which costs are being fixed.

[8] GAC argues for partial indemnity costs to be assessed at 60 to 65% of actual costs. It asks that the costs grid to be disregarded as out of date or unrealistic. Leaving aside the question of whether, in an appropriate case, that approach is appropriate, I am not persuaded that it should be followed here. I will apply Rule 57.01, bearing in mind the principles in Boucher, in the exercise of my discretion.

[9] Beginning with the result, there is no dispute that GAC was the successful party. The issues fixed for trial were as follows:

(a) whether the Accused Products were covered by the OrthoArm’s 715 Patent, and are therefore covered by the Licence Agreement between the parties;

(b) the amount of the sales made by GAC on which royalty payments should have been made to OrthoArm, if covered by the 715 Patent and therefore the Licence Agreement;

(c) the amount of punitive and aggravated damages that should be awarded, if any, relating to the decisions in (a) and/or (b); and,

(d) costs of this proceeding as the trial judge sees fit.

[10] Issue (b) was agreed to by the time of trial. Issues (a) and (c) were decided in favour of GAC.

[11] With respect to offers to settle, GAC relies on a proposal it made in 2008, that the dispute be submitted to a neutral U.S. Patent agent for final determination. OrthoArm did not agree to do so. This is not a conventional offer to settle, but I have taken it into account to a lesser degree.

[12] Moving to the reasonable expectations of the parties, there is no doubt that GAC’s costs claim is dramatically larger than the OrthoArm costs for the same dispute. The number of hours spent is similarly higher. As a result, OrthoArm has been able to point to the significantly higher number of hours spent by GAC’s counsel at each pre-trial step, and in relation to the trial, submitting variously that the extra hours were excessive, not called for or not reasonable. Without going through each item in detail, I accept the general observation that the amount of time spent was very high from the standpoint of this partial indemnity costs claim. I have taken this into account, just as I have taken into account OrthoArm’s bill of costs as relevant to its reasonable expectations.

[13] OrthoArm further submits that the hourly rates were high, again from the standpoint of partial indemnity, and that certain factors for consideration under Rule 57.01 also demonstrate that the GAC costs claim is not fair and reasonable.

[14] Moving to the more specific factors in Rule 57.01, the parties have focused on certain factors especially relevant to this case, as follows.

[15] Rule 57.01(a) – amount claimed and recovered: Only aggravated and punitive damages were among the issues to be determined at this trial. The statement of claim sought $1 million for those damages, but only $25,000 was sought at trial, unsuccessfully. The claim for unpaid royalties was not determined at this trial given a dispute about the applicable percentage royalty. However, the alternative percentages are known (5% or 10%) and the likely maximum recovery is therefore also known based on the admitted sales figures. Taking all of this into account, I accept GAC’s position that the total amount claimed was about $2.5 million plus interest, applicable taxes and costs.

[16] Rule 57.01(c) – complexity: The parties take opposite positions on complexity; GAC submitting that this matter was complex, and OrthoArm submitting that it was not. It is fair to say, as does OrthoArm, that the issues allowed for brief pleadings, a small number of productions, brief examinations for discovery and a relatively short, approximately four day, trial. Of course, all of these observations are not necessarily reflective of the amount of work required by counsel to properly defend the claim. In this case, it was apparent to me at trial that the length of the trial, which was a model of efficiency, was possible in large part due to the skill, efficiency and preparation of counsel on both sides. I expect this was also the reason for the brevity of certain earlier steps, at least to some extent. Overall, I conclude that this was a relatively complex matter, although not in the sense of requiring voluminous productions or trial evidence.

[17] Rule 57.01(d) – importance of the issues: The parties agree that the issues were important, although OrthoArm notes that the 715 Patent has now expired, which I accept would limit the ongoing consequences of the interpretation of that patent.

[18] Rule 57.01(g) – refusal to admit: GAC relies upon a request to admit that it served in advance of trial, and OrthoArm’s refusal to make some of the requested admissions. However, the admissions that were refused were, in essence, the very conclusions sought at trial. They were determinative of liability. Given the nature of those refused admissions, I conclude that they are not a significant additional factor in this case, beyond the overarching principle that GAC’s success should be taken into account.

[19] Rule 57.01(i) – other relevant matters: A number of other factors have been raised as relevant to costs. I have considered them all in the exercise of my discretion. Without limiting my consideration, I specifically address the following matters:

(1) After detailed examination of the supporting material produced by GAC, OrthoArm has identified approximately $38,000 of time that I am satisfied is not recoverable in this trial because it either relates to the second action or other matters for which costs have already been addressed.

(2) The claimed disbursements are high primarily because of the need to pay expert witness fees for Mr. Goodwin, who was an important trial witness and had the task, together with the expert called by OrthoArm, of fully addressing central issues about U.S. patent law. OrthoArm submits that those disbursements should be reduced to remove his time charged after his testimony was complete, but that there should be a credit for travel expenses. Overall, I conclude that this disbursement should be reduced by $12,000.

(3) Another complaint about the disbursements arises from travel expense claims for flights to New York in business or first class. I agree that business or first class would not normally form part of a partial indemnity costs claim, absent special explanation, and have taken that into account.

(4) OrthoArm also raises the number of different people involved, and the extent of involvement of senior counsel, which I have taken it into account.

[20] I return to the most significant factor raised by OrthoArm, specifically the very high number of hours throughout the proceeding, in comparison with its own bill of costs for this action and four-day trial. By far, this is the most significant factor justifying a substantial decrease in the amount sought, especially having regard for the need to consider the reasonable expectations of OrthoArm under Boucher and subrule 57.01 (0.b).

[21] Taking all relevant factors into account in the exercise my discretion, I fix costs in this matter as follows: $300,000 for fees, $90,000 for disbursements, and applicable HST.

Justice W. Matheson

Released: October 23, 2015

[^1]: Definitions from the trial decision, at 2015 ONSC 5097, are also used in this endorsement.