Federal Court Decisions

 

 

Date: 20061016

Docket: T-426-04

Citation: 2006 FC 1228

Ottawa, Ontario, October 16, 2006

PRESENT:     The Honourable Mr. Justice Harrington

 

BETWEEN:

SHMUEL HERSHKOVITZ,

SYSTÈMES DE SÉCURITÉ PARADOX

LTÉE - PARADOX SECURITY SYSTEMS LTD., and

PINHAS SHPATER

 

Plaintiffs (Defendants by Counterclaim)

and

 

 

TYCO SAFETY PRODUCTS CANADA LTD.

 

Defendant (Plaintiff by Counterclaim)

 

 

REASONS FOR ORDER AND ORDER

 

[1]               This appeal from an interlocutory order of Prothonotary Morneau brings into issue the circumstances in which a non-party may be examined for discovery and be compelled to produce documents which may be relevant to the action.

 

[2]               The underlying action is for patent infringement. The plaintiffs, whom I shall call “Paradox”, allege that the defendant wilfully and deliberately produced a telephone line coupler circuit for home security systems that infringes two of its patents. Although the defendant has been examined for discovery, as the result of a corporate restructure neither its representative nor many of its current employees were with the company when key events took place in the 1990s. The non-party Paradox wants to examine is John Peterson, who was the principal of the defendant company at that time.

 

[3]               One party to an action in this Court is entitled to examine the other for discovery prior to trial. The examination allows the party to gain greater insight into the opposite party’s case, gives an opportunity to assess a potentially key witness, limits what that party might say at trial and occasionally elicits important admissions. If the party to be examined is a corporation, the general rule is that the corporation selects its representative. This is because the answers given are binding upon the corporation. Nevertheless, the Court may grant leave to a party to examine a non-party. The circumstances are set out in rule 238 of the Federal Courts Rules which says:

 

[4]               Based on the evidence before him, the key element of which was the transcript of plaintiff’s three-day examination of a representative of the defendant, Prothonotary Morneau was not satisfied that Mr. Peterson might have information and was also of the view that it would not be unfair to deny Paradox the opportunity of questioning him before trial. He did not state one way or the other whether the other two criteria, rules 238(3) (b) and (d), were met.  As the request for production of such documents as may be in Mr. Peterson’s control was ancillary to the examination he saw no need to deal with it. Neither do I.

 

[5]               In this appeal, Paradox submits that Prothonotary Morneau’s order was clearly wrong and also seeks to introduce new evidence to shore up its argument that Mr. Peterson would have pertinent information.

 

ISSUES

[6]               The issues are:

a.       Was the prothonotary’s order discretionary in nature?

b.      If so, did it bring the case to an end?

c.       If so, is it clearly wrong as being:

                                                               i.      based upon a wrong principle? or

                                                             ii.      based upon a misapprehension of the facts?

d.      Was the prothonotary’s order based upon a finding of fact?

e.       If so, did he make a palpable or overriding error?

f.        Is the new evidence in this appeal really new? Could it have been reasonably discovered prior to the hearing before Prothonotary Morneau? If not, are there special circumstances which mitigate against the rule that new evidence is not usually permitted on appeal or in judicial review?

 

[7]               Before making my own analysis, I shall proceed by outlining the history of the case, the examination for discovery of Tyco, the motion before Prothonotary Morneau, and his decision.

HISTORY OF THE PROCEEDINGS

[8]               In its Amended Statement of Claim, Paradox, as might be expected in actions of this kind, seeks declarations that, as between the parties, its two patents in question are valid and that Tyco has infringed and has induced others to infringe certain claims therein. In addition to seeking a permanent injunction and delivery up, it seeks damages, or alternatively an accounting of profits, compensation for damage resulting from Tyco’s alleged infringing activities from the date the applications for the patents were opened for public inspection until their issuance, as well as punitive or exemplary damages.  Tyco denies it has infringed the patents which it says are invalid in any event. It also counterclaims for appropriate declarations.

 

[9]               Before Tyco was examined on discovery, Prothonotary Morneau ordered, on consent, that the action proceed in stages with a reference, if necessary, as to damages and accounting of profits after trial, including entitlement to and quantum of any punitive or exemplary damages. He further ordered that the parties press on without oral or documentary discovery with respect to those issues.

 

[10]           During the course of the proceedings, the name of the defendant was changed from Digital Security Controls Ltd. to Tyco Safety Products Canada Ltd. As explained during the discovery, John Peterson, Digital Security’s principal, was bought out by Tyco’s parent company. The company was merged with and continued as Tyco Safety Products Canada Ltd.

 

THE EXAMINATION FOR DISCOVERY

[11]           Following the buyout, Mr. Peterson and several others left the company. Tyco’s representative on discovery was Joseph Buccino, its vice-president - engineering. He was not in Tyco’s employ when the early events in this litigation took place. He prepared himself by reviewing Tyco’s records and by speaking with employees who were still with the company. He made it clear that he had not spoken with former employees, including Mr. Peterson.

 

[12]           Mr. Buccino testified, based on information and belief, that Tyco’s dialer had been developed by its senior electrical engineer, Reinhard Pildner, when the company was still known as Digital Security Controls Ltd., and before its acquisition by Tyco’s parent company. Mr. Pildner had informed him that not only was he familiar with Paradox’s patents, but he was also familiar with its products while the patents were pending. However, he denied copying them. Although Mr. Peterson, as principal of the company, had instructed him to develop a dialer, he played no part therein. In this particular invention, Mr. Pildner acted as a “lone wolf”.

 

[13]           Mr. Buccino was asked to undertake and did undertake to make follow-up inquiries and to verify certain points with current employees. Unfortunately, he has not been able to obtain any further information from Mr. Pildner who has taken ill. He is in intensive care and not in position to provide any further information. However, under our Federal Courts Rules, should he later be able to communicate, Tyco has an ongoing obligation to seek the information provided and to inform Paradox accordingly. Not once during the discovery was Mr. Buccino asked to make inquiries of Mr. Peterson.

 

THE MOTION BEFORE PROTHONOTARY MORNEAU

[14]           The order Paradox sought from Prothonotary Morneau, who is also case managing this action, was that Mr. Peterson be directed to attend for examination to answer questions relating to the development of Tyco’s products and as to the awareness of the defendant, or any of its employees, officers or directors, of Paradox’s patents, applications therefore, corresponding foreign patent rights, or its products. Auxiliary to that was an order that Mr. Peterson produce any and all documents in his possession, power or control relating thereto.

 

[15]           In its motion before the Prothonotary, Paradox reiterated its claim that the defendant had deliberately and wilfully infringed and was liable for punitive and exemplary damages. Faced with the fact that the issue of punitive and exemplary damages had been bifurcated, as Prothonotary Morneau noted in his reasons, during argument it identified three other issues, which are the ones before me:

a.                   Procured inducement;

b.                  Reasonable compensation for infringement between the time the patent applications were laid open and when the patents were granted; and

c.                   The election between profits or damages. It is for the trial judge to allow, or not allow, a successful plaintiff to elect between profits or damages.

 

[16]           Paradox also says it attempted during the examination for discovery of Tyco to obtain information regarding Mr. Peterson’s involvement in the development of its dialer, but that Tyco’s response was that it did not have such information. Paradox’s counsel communicated with Mr. Peterson, but were informed through counsel that he would not voluntarily agree to be examined as he was subject to a confidentiality provision in the share purchase agreement through which he sold his interest in the company.

 

[17]           Paradox strongly relies on one of the documents Tyco provided, a letter from patent and trade-mark agents to Mr. Peterson, dated in July 1998 which states they found a U.S. patent in favour of the plaintiff, Pinhas Shpater, and a corresponding Canadian patent application (which patent is the subject of this litigation). Their preliminary view was that there were fundamental differences between the circuit described in that patent and the one in Digital Security Controls’ own patent application.

 

PROTHONOTARY MORNEAU’S DECISION

[18]           As to Mr. Peterson’s awareness of Paradox’s patents and products, Prothonotary Morneau was of the view that this related to whether Tyco would have deliberately and wilfully infringed the patents. He said that this point might have to be resolved eventually if Paradox were to be granted punitive and exemplary damages. However, that issue was bifurcated to a second stage and therefore the motion was premature.

 

[19]           Prothonotary Morneau went on to say:

 [12]            As to other potential issues identified by Paradox at the hearing of the motion and for which Mr. Peterson's awareness would need to be probed, to wit, procured inducement, reasonable compensation for early infringement and the election by Tyco between profits or damages, I consider that these issues were mainly to be addressed during the discovery of Mr. Buccino. In addition, Tyco's motion material does not sufficiently reveal that Mr. Peterson may have information on these issues for this Court to allow an extraordinary measure such as a rule 238 examination.

 

[13]            As to the other motion issue, to wit the development of the DSC dialer, Tyco's motion material indicates that Paradox has through the discovery of Mr. Buccino been provided with extensive material regarding the function and operation of the dialer. It is therefore difficult for this Court to consider here under rule 238(d) that it would be unfair to Paradox not to allow it to question Mr. Peterson before trial.

 

[14]            In addition, on the development of the dialer, upon consideration the Court is not satisfied that Paradox has discharged its burden of establishing that Mr. Peterson may have information on that issue. In that regard, I agree with Mr. Peterson and Tyco that the discovery of Mr. Buccino (see pages 160, 187 and 188 of transcript of the discovery of Mr. Buccino) points more in the direction that Mr. Peterson would really have no material information about the design of the dialer, and that Mr. Pildner was the only one at Tyco (at the time DSC) involved in the design of the dialer. Mr. Pildner was described a[t] the "lone wolf" in terms of design of the dialer.

 

ANALYSIS

[20]           I will first deal with the new evidence.

 

[21]           In this appeal by way of motion, Paradox has filed an affidavit from a paralegal employed by its solicitors which sets out the results of her searches of Canadian and United States patents and patent applications. They show that John Peterson was named as an inventor on several, that Mr. Reinhard Pildner was often identified as a co-inventor, and that on one occasion both John Peterson and Reinhardt Pildner were named as inventors. The purpose of this information is to dispel Tyco’s position on discovery that Mr. Pildner was acting as a “lone wolf”.

 

[22]           The new evidence, so called, was all publicly available and could have been included in the material put before Prothonotary Morneau. As it could have been reasonably discovered prior to that hearing, and as no special circumstances exist, I am not prepared to consider the affidavit of Nancy Doherty (Amchem Products Inc. v. British Columbia (Workers’ Compensation Board), [1993] 1 S.C.R. 897. See also Canada (Minister of Human Resources Development) v. Macdonald, 2002 FCA 48, [2002] F.C.J. No. 197 (QL); Kent v. Canada (Attorney General), 2004 FCA 420, [2004] F.C.J. No. 2083 (QL), and Taylor v. Canada (Minister of Human Resources Development), 2005 FCA 293, [2005] F.C.J. No. 1532 (QL)).

 

[23]           Prothonotary Morneau was not satisfied that Mr. Peterson might have relevant information. That was one of the four prerequisites to the exercise of discretion under rule 238 to decide whether or not to have granted Paradox leave to examine. As I see it, this part of his decision was not discretionary in nature; rather, it was based on his assessment of the evidence. It may be that I would have come to a different appreciation of that evidence. However, his findings are not to be disturbed unless he made a palpable or overriding error. The finding of fact must be clearly wrong (Stein v. The Ship “Kathy K”, [1976] 2 S.C.R. 802; Housen v. Nikolaisen, [2002] 2 S.C.R. 235).  It does not matter that the evidence was in documentary form, and that it is just as easy for me to read it as it was for him. The Supreme Court held in N.V. Bocimar S.A. v. Century Insurance Co. of Canada, [1987] 1 S.C.R. 1247 that the scope of appellate review of findings of fact as set out in the Kathy K. applied notwithstanding that the nature of the evidence consisted of expert evidence and documentary evidence which allowed the Court of Appeal to be “almost in the position of conducting the trial de novo and making our own assessment of the evidence.”  His decision should stand.

 

[24]           Prothonotary Morneau was also of the view that it would not be unfair to deny Paradox the opportunity to question Mr. Peterson before trial. He is, of course, a compellable witness at trial, but Paradox would like to know in advance what he has to say. This assessment may also be based on the evidence, in which case I see no palpable or overriding error. However, to the extent the decision may have been based on discretion, it should not be disturbed unless a) the questions raised were vital to the final issue of the case or the order was clearly wrong in the sense that the discretion was based i) upon a wrong principle or ii) upon a misapprehension of the facts. (Merck & Co., Inc. v. Apotex Inc. 2003 FCA 488, [2004] 2 F.C.R. 459, (2003), 30 C.P.R. (4th) 40). See also Canada v. Aqua-Gem Investments Ltd., [1993] 2 F.C. 425 (C.A.) and Z.I. Pompey Industrie v. ECU-Line N.V., 2003 SCC 27, [2003] 1 S.C.R. 450.

 

[25]           The questions raised were not vital to the final issue of the case. As to whether his decision was clearly wrong, Paradox submits that Prothonotary Morneau should not have divided the matter into three groups of issues and have dealt with them separately. Those issues were 1) Mr. Peterson’s awareness of Paradox’s patents of products; 2) procured infringement, reasonable compensation for earlier infringement and the election between profits and damages, and 3) development of the Digital Security’s dialer. It submits all relate to the same issue.

 

[26]           I see nothing clearly wrong with Prothonotary Morneau’s approach. It is noteworthy that he was of the view that procured inducement, reasonable compensation for earlier infringement and the election were issues to be addressed during the discovery of Mr. Buccino. I agree.

 

[27]           However, should I be wrong on that score, I come to the same conclusion on my own.

 

[28]           Rule 244 of the Federal Courts Rules provides that when the representative being examined for discovery is unable to answer a question, the examining party may require him to become better informed. During the discovery, Mr. Buccino disclosed that he had not spoken with Mr. Peterson. However, he was not asked to make inquiries of him. That is what Paradox should have done. Paradox cannot studiously avoid asking for an undertaking and then move to examine Mr. Peterson as a non–party. In the circumstances, it should only have been entitled to move under rule 238 if Mr. Buccino refused to make an undertaking to approach Mr. Peterson, or if Mr. Peterson refused to cooperate with him.

 

[29]           Paradox suggests that Mr. Buccino was unable to provide satisfactory information because he was not in Tyco’s employ at the relevant time, and as there was no one else available to him who was employed with Tyco at that time. They say this is exactly the reason why they seek discovery of Mr. Peterson.

 

[30]           However, it is well established that merely because a person is no longer employed by a party, that party cannot be excused from attempting to obtain information from him (Control Data Canada Ltd. v. Senstar Corp. (1987), 10 F.T.R. 153, 13 C.P.R. (3d) 546). Had Mr. Buccino been asked to undertake to approach Mr. Peterson, he should have done so. If Mr. Peterson refused to provide information, or if Tyco’s parent company was not prepared to relieve him from his confidentiality undertaking, Paradox should have been so informed. Then it would have been able to come to this Court not simply to say that it was unable to obtain the information informally from Mr. Peterson, but also that it was unable to obtain the information from another source by reasonable means. That other source was Mr. Buccino who would have been obliged to undertake to make those inquiries.

 

[31]           Consequently, the motion will be dismissed. Both Tyco and Mr. Peterson suggest costs payable forthwith based on Column V of Tariff B. Although the motion is dismissed with costs, I see no need to give any special directions other than that costs be based on Column III, mid-range, and Tyco is entitled to second counsel fees at the hearing, being 50% of lead counsel.

 

ORDER

 

THIS COURT ORDERS that the appeal from the order of Prothonotary Morneau dated 26 July 2006 is dismissed with costs.

 

 

“Sean Harrington”

 

FEDERAL COURT

 

SOLICITORS OF RECORD

 

DOCKET:                                          T-426-04

 

STYLE OF CAUSE:                          SHMUEL HERSHKOVITZ, SYSTÈMES DE SÉCURITÉ PARADOX LTÉE - PARADOX SECURITY SYSTEMS LTD., and PINHAS SHPATER v.

TYCO SAFETY PRODUCTS CANADA LTD.

 

 

PLACE OF HEARING:                    Montreal, Quebec

 

DATE OF HEARING:                      September 25, 2006

 

REASONS FOR ORDER:               HARRINGTON J.

 

DATED:                                             October 16, 2006

 

 

APPEARANCES:

 

Mr. George R. Locke Mr. Ron Toledano	FOR THE PLAINTIFFS (DEFENDANTS BY COUNTERCLAIM)
Mr. Marek Nitoslawski Mr. Alain Dussault	FOR THE DEFENDANT (PLAINTIFF BY COUNTERCLAIM)
Ms. Jennifer Dolman	FOR NON-PARTY JOHN PETERSON

 

SOLICITORS OF RECORD:

 

Ogilvy Renault LLP Barristers & Solicitors Montreal, Quebec	FOR THE PLAINTIFFS (DEFENDANTS BY COUNTERCLAIM)
Fasken Martineau DuMoulin LLP Barristers & Solicitors Montreal, Quebec	FOR THE DEFENDANT (PLAINTIFF BY COUNTERCLAIM)
Osler, Hoskin & Harcourt LLP Barristers & Solicitors Toronto, Ontario	FOR NON-PARTY JOHN PETERSON