Complex proceedings yield elevated lump sum costs for Kobold

Justice McVeigh recently awarded Kobold Corporation and Promac Industries Ltd. elevated lump sum costs in what may have been “the most complex intellectual property matter before the Federal Court”. NCS Multistage Inc. v. Kobold Corporation, 2023 FC 1486 involved two actions, six patents, approximately 145 asserted claims and numerous other issues.

This blog post covers the issue of costs and is one of several discussing this decision. Other posts on this decision include our posts on inventive concept and double patenting.

Background

NCS Multistage Inc. and Kobold Corporation are competitors in the oilfield services industry, both providing equipment for hydraulic fracturing (fracking). Fracking is an extraction technique that involves pumping large quantities of fluid at high pressures into a well drilled into rock formations. The high pressure cracks the rock, allowing trapped gas and oil to flow to the surface.

This was an action and counteraction pertaining to 6 different patents relating to tools and sleeves used in the fracking process. NCS sued the Defendants for infringement of five patents. Kobold asserted that the NCS patents were invalid and counter-sued for infringement of its 571 Patent.  

This case was referred to by counsel as “perhaps the most complex intellectual property matter before the Federal Court” and “more patent construction than most judges engage in during their entire judicial career”. Justice McVeigh emphasized that putting countless issues before the Court for simultaneous determination was akin to “trial by everything but the kitchen sink” and detrimental to the aims of the parties in presenting the most clear and effective arguments.

Law on Costs

The Federal Court has two primary methods of assessing costs: unit value assessed through Tariffs, or a more “traditional” lump sum award. Assessing costs through Tariffs improve predictability and promote moderation in cost awards. However, this method has been criticized for being “significantly lower than the prevailing party’s actual outlays” especially when costs are significant.

In contrast, lump sum awards provide increased indemnity to parties with consideration to the circumstances of each case. Lump sums are appropriate in “complex litigation conducted by sophisticated parties”, as emphasized by the Court of Appeal in. While the award of a lump sum does not need to become a full accounting exercise, the amount is usually based on a percentage of the party’s reasonably incurred legal fees.

Justice McVeigh noted that the Federal Court has established a general range of one-quarter to one-third of legal fees for lump sum cost awards but that higher amounts are sometimes appropriate:

It is fit to depart from the norm and award elevated lump sum costs in cases that are long or complex, with sophisticated commercial parties, considering restraint (or lack thereof) by parties in drafting multiple issues against one or more parties, and weighing the conduct of the parties. If a combination of these and other relevant factors are considered and a Judge determines a departure from the norm is warranted, the acceptable range should be 25% to 50% with an analysis starting at a mid-point between them.

Cost Award

Justice McVeigh awarded lump sum costs to the Defendants, Kobold and Promac, comprising 45% of actual legal costs based on the approximation of $4 million. The Defendants also received the total amount of their claimed disbursements. The plaintiff was ordered to pay $2.4 million for costs and disbursements, plus tax. 

In arriving at a 45% the lump sum cost award, Justice McVeigh started at 37.5% and increased the percentage based on her consideration of Rule 400(3) of the Federal Court Rules:

• Result of the proceeding: NCS’s patents were found invalid, and NCS had infringed on Kobold’s valid patent. The defendants were “entirely successful”.
• Complexity of issues: the subject matter was inherently complex, but the multitude of claims and issues unnecessarily enhanced the complexity of the case.
• Offer to contribute: the significant amount of work involved for both parties given the length and complexity of the matter pointed to costs in the higher range.
• Conduct of the parties: the proceedings were unduly complicated. Despite counsel’s excellent advocacy, the proceedings were at times “a bar room brawl” and civility was sometimes lost. The parties also made choices that lengthened th proceeding and NCS deliberately framed the action as widely as possible.

A copy of the decision may be found here.