NPEs Beware: Contorted Construction of a Patent Will Attract Elevated Costs

On January 4, 2017, the Honourable Justice Locke of the Federal Court of Canada released his decision in Mediatube Corp. et al. v. Bell Canada, 2017 FC 6. This was a patent infringement action in respect of Canadian Patent No. 2,339,477 (the “‘477 Patent”) by the plaintiffs, NorthVu Inc. (patent owner) and MediaTube Corp. (licensee) against Bell Canada  (including former Bell Aliant Regional Communications, Limited Partnership, together “Bell”). The plaintiffs alleged that Bell infringed the ‘477 Patent through the delivery of its digital Internet Protocol Television (“IPTV”) services called Fibe TV and FibreOp TV. The Plaintiffs sought damages in excess of $350 million as well as a significant punitive damages award.

Justice Locke concluded that there were four independent bases for determining that Bell did not infringe the claims of the ‘477 Patent, including that the patent was limited to an analog system that could not possibly cover Bell’s digital IPTV service. In awarding Bell its costs elevated by 50%, Justice Locke reprimanded the Plaintiffs for their conduct in commencing the action “without a clear theory of infringement” and bringing a case to trial that required “contortions of the claims [...] to find infringement”. He noted that “the plaintiffs should have known that Bell did not infringe”.

While Justice Locke found that the patent was valid, it was only because the claims were construed to be limited to the analog embodiment disclosed in the ‘477 Patent. The Court held that the patent would have been invalid if it applied the Plaintiffs’ “contorted construction”. In the end, Justice Locke found that “the case for non-infringement is so compelling that I am not prepared to accept that the plaintiffs had a reasonable belief that they had a good arguable case.”

Justice Locke also sanctioned the Plaintiffs’ decision to wait until the middle of trial to withdraw their punitive damages claim.  From the outset of the case, the Plaintiffs persisted in alleging that Bell:

“had notice of the Plaintiffs’ patent rights, was given access to their IPTV systems under express conditions of confidence, knew thereby details and the specifics of the invention covered by the Plaintiffs’ patent right, entered into a relationship … betrayed that relationship and proceeded to unilaterally deploy IPTV systems that infringe those very patent rights”.

Despite Bell’s efforts to strike these allegations early in the case, the Plaintiffs maintained these allegations until the middle of trial, withdrawing their claims only after the cross-examination of their lead witness, Mr. Douglas Lloyd, but before Bell called its case. Justice Locke held that “from the beginning of the case, the plaintiffs had access to information that Bell was neither dishonest nor fraudulent.” The Plaintiffs should have known about the “serious cost consequences that could follow in the event that its allegations were shown to be unwarranted”.  The Trial Judge ordered the Plaintiffs to pay solicitor-client costs for knowingly making unwarranted and unsubstantiated allegations of misconduct against Bell.

Earlier in the case, the Case Management Judge determined that the Plaintiffs appeared to be corporations that have no assets to satisfy a costs award but that the “Plaintiffs have access to funds from their backers/investors, share-holders or other persons or entities”. Directors of one or more of the corporations include Senator Trevor Eyton, Toronto investor Mr. Tim Bowman and the Honourable James S. Peterson. Despite the serious allegations made by the Plaintiffs against Bell, and the cost consequences that could follow, the pre-trial order for security for costs was limited to $750,000.  How much the parties will be paying in costs has yet to be determined.

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