PLANIT SOFTWARE LTD. Plaintiff v. MR. BEAVER INC., 2022 FC 585

Date: 20220421 Docket: T-1779-21 Citation: 2022 FC 585 Toronto, Ontario, April 21, 2022 PRESENT: Prothonotary Trent Horne BETWEEN: PLANIT SOFTWARE LTD. Plaintiff and MR. BEAVER INC. Defendant and BAHRAM MONADI AFSORAN AND MORANA GROUP LTD Third Parties ORDER AND REASONS I. Overview [ 1 ] The third parties have brought a motion to strike the third party claim, without leave to amend, on the grounds that the defendant lacks standing, and the Federal Court lacks jurisdiction. For the reasons that follow, I conclude that the motion should be granted in part.

While certain elements of the third party claim are clearly outside the jurisdiction of the Federal Court, it is not plain and obvious that claims for contribution and indemnity relating solely to copyright liabilities should be struck. II. Background [ 2 ] The plaintiff, Planit Software Ltd. ( " “Planit Software” " ), claims ownership of copyright in software described as AlphaCAM and NCSIMUL. [ 3 ] In its statement of claim ( " “Claim” " ), Planit Software alleges that the defendant, Mr.

Beaver Inc., (“Mr Beaver”) is in the business of designing and manufacturing cabinets, and operates a facility that utilizes computerized CAD/CAM drafting technology for the woodworking industry, including the AlphaCAM and NCSIMUL software. The Claim alleges that since at least as early as February 2021, Mr Beaver installed on its computer systems, used, and reproduced unauthorized copies of the AlphaCAM and NCSIMUL software.

The Claim seeks a declaration that Mr Beaver has infringed the copyright in these works, injunctive relief, damages and an accounting of profits, and punitive damages. [ 4 ] Mr Beaver denies that Planit Software is entitled to any of the relief it requests. In its statement of defence (“ " Defence” " ), Mr Beaver pleads that it entered into an asset purchase agreement with Morana Group Ltd ( " “Morana Group” " ) in which it purchased and took over Morana Group’s business premises and equipment. Mr Beaver states that, as part of the asset purchase agreement, Mr.

Beaver purchased from Morana Group certain computer numerical control ( " “CNC” " ) cabinet machinery and a CNC computer system with the required programming/software to operate the machine. Mr Beaver states that, based on various representations from Morana Group, it believed the Alphacam software to be genuine, and that there was no reason to believe that there were any issues with the software installed on this equipment. [ 5 ] Mr Beaver further pleads that in about August 2021 there was a " “pop-up” " notification on the CNC computer system indicating that the software subscription needed to be renewed.

After unsuccessfully attempting to renew the license with Vectorline (the Canadian supplier of Alphacam software), Mr Beaver turned to Bahram Monadi Afsoran (referred to in the pleadings as " “Bahram” " , a defined term I will use as well) who is alleged to be a representative of both Morana Group and the manufacturer of the equipment, Makser Machine. The Defence asserts that Bahram indicated to Mr Beaver that the manufacturer of the equipment required $1,000.00 USD to renew the software license.

Shortly thereafter, Mr Beaver made the requested $1,000.00 USD payment to Morana Group, as directed by Bahram. [ 6 ] Planit Software’s reply denies and joins issue with every allegation in the Defence. In particular, the reply alleges that Mr Beaver, or its employees and officers, used and reproduced the works in issue, and in particular used and reproduced cracked and unauthorized versions of the copyrighted works before and after February 22, 2021, the alleged date of the asset purchase agreement. [ 7 ] In addition to defending the Claim, Mr Beaver commenced a third party claim against Bahram and Morgana Group.

The third party claim seeks the following relief: 1. The defendant, Mr. Beaver Inc. (hereinafter referred to as the “Mr. Beaver”), claims as against the third parties, Bahram Monadi Afsoran and Morana Group Ltd. (hereinafter collectively referred to as the “Third Parties”):

a) damages in the amount of $250,000.00 for misrepresentation and intentionally infringing the copyrights as alleged in the statement of the claim in the main action which has caused severe damages to Mr. Beaver;

b) damages for loss of profit in an amount to be determined before trial after full accounting and discovery;

c) punitive damages in the amount of $200,000.00;

d) contribution, indemnity, and relief for any amounts that it may be liable to pay the Plaintiff in the main action;

e) interest pursuant to the Courts of Justice Act , R.S.O 1990, c.C.43 ;

f) the costs of defending the main action on a substantial indemnity basis plus HST;

g) the costs of the Third Party Claim on a full indemnity basis plus HST; and

h) such further and other relief as this Honourable Court may deem just. [ 8 ] Bahram and Morgana Group have moved to strike the third party claim on the basis that Mr Beaver has no standing to sue the third parties for copyright infringement, and that the Federal Court does not have jurisdiction to adjudicate claims based on misrepresentation. Mr Beaver opposes the motion. In general, it submits that: the factual matrix of the third party claim is closely associated with the issues arising under the Copyright Act , RSC 1985, c.

C-42 ; that the parties’ rights are extensively governed by its framework, and therefore inextricably caught up in the jurisdiction the Federal Court; and that it would be an absurd result to require Mr Beaver to pursue claims for contribution and indemnity in a separate proceeding in the provincial courts. [ 9 ] The plaintiff did not file motion materials, and did not attend the hearing. While obviously aware of the defendant’s position on who is responsible for any unauthorized reproduction of the software, the plaintiff has not taken any steps to directly sue the third parties for copyright infringement. III.

Law on Motions to Strike [ 10 ] The third parties rely on Rule 221 of the Federal Courts Rules , SOR /98-106 ( " “ Rules ” " ): " Striking Out Pleadings " " " " Radiation d’actes de procédure " " " " Motion to strike " " " " Requête en radiation " " 221

(1) On motion, the Court may, at any time, order that a pleading, or anything contained therein, be struck out, with or without leave to amend, on the ground that it " " " " 221

(1) À tout moment, la Cour peut, sur requête, ordonner la radiation de tout ou

partie d’un acte de procédure, avec ou sans autorisation de le modifier, au motif, selon le cas : " " " " (

a) discloses no reasonable cause of action or defence, as the case may be, " " " "

a) qu’il ne révèle aucune cause d’action ou de défense valable; " " (

b) is immaterial or redundant, " "

b) qu’il n’est pas pertinent ou qu’il est redondant; " " (

c) is scandalous, frivolous or vexatious, " " " "

c) qu’il est scandaleux, frivole ou vexatoire; " " (

d) may prejudice or delay the fair trial of the action, " " " "

d) qu’il risque de nuire à l’instruction équitable de l’action ou de la retarder; " " " " (

e) constitutes a departure from a previous pleading, or " " " "

e) qu’il diverge d’un acte de procédure antérieur; " " (

f) is otherwise an abuse of the process of the Court, " " " "

f) qu’il constitue autrement un abus de procédure. " " and may order the action be dismissed or judgment entered accordingly. " " " " Elle peut aussi ordonner que l’action soit rejetée ou qu’un jugement soit enregistré en conséquence. " " "

"Evidence " " " "Preuve " "

(2) No evidence shall be heard on a motionfor an order under paragraph (1)(a). " " " "

(2) Aucune preuve n’est admissible dans lecadre d’une requête invoquant le motif visé àl’alinéa (1)(a). " " " [11] The legal principles applying to motions to strike are well known. To strike a pleading, it must be plain and obvious, assuming thefacts pleaded to be true, that the pleading discloses no reasonable cause of action. It needs to be plain and obvious that the action iscertain to fail because it contains a radical defect (R v Imperial Tobacco Canada Ltd, 2011 SCC 42, [2011] 3 SCR 45 at para 17). [12] To disclose a reasonable cause of action, a claim must: (

a) allege facts that are capable of giving rise to a cause of action; (b)disclose the nature of the action which is to be founded on those facts; and (

c) indicate the relief sought, which must be of a type that theaction could produce and the Court has jurisdiction to grant (Oleynik v Canada (Attorney General), 2014 FC 896 at para 5). [13] On a motion to strike, the pleadings must be read as generously as possible, erring on the side of permitting a novel but arguableclaim to proceed to trial (Atlantic Lottery Corp Inc v Babstock, 2020 SCC 19 at para 19). IV.

Evidence on the Motion [14] For a motion to strike based on paragraph 221(1)(a), no evidence shall be heard (subrule 221(2)). [15] The “plain and obvious” test applies to the striking out of pleadings for lack of jurisdiction in the same manner as it applies to thestriking of a claim on the ground that it discloses no reasonable cause of action.

The only difference is that, unlike on other motions tostrike under paragraph 221(1)(a), affidavit evidence is admissible on a motion to strike on jurisdictional grounds (Hodgson v ErmineskinIndian Band No 942, (FC), 180 FTR 285 at para 10, aff’d (2000), 267 NR 143 (FCA) at para 4). [16] I found the affidavits filed on behalf of Mr.

Beaver (affidavits of Laura-Marie Paynter sworn March 14, 2022 and March 21, 2022)and on behalf of the third parties (affidavit of Avaz Moradzadeh sworn March 16, 2022) of limited assistance when considering thejurisdictional issue. [17] The first affidavit from Ms Paynter attaches as exhibits copies of the pleadings. Pleadings do not need to be included in an affidavit.An affidavit on a motion is to include facts to be relied on by that party that do not appear in the Court file (Rule 363).

The pleadings arealready in the Court file, and can be included in a motion record or otherwise considered on the motion without being attached to anaffidavit. Ms Paynter’s first affidavit also attaches correspondence from counsel for the third parties confirming their instructions to bringa motion to strike the third party claim. While perhaps relevant to costs, this is of little assistance on the substance of the motion. [18] Mr Moradzadeh’s affidavit largely repeats the allegations in the statement of defence and third party claim.

Since the facts alleged ina pleading are presumed to be true for the purposes of a motion to strike, it is neither necessary nor useful to repeat the allegations in anaffidavit in response to the motion. While Mr Moradzadeh’s affidavit does include details and attach documents that were not included inthe Defence, this additional information did not inform whether the Federal Court has jurisdiction over the third party claim or not. [19] Ms Paynter’s second affidavit is in response to Mr Moradzadeh’s affidavit.

There is one substantive paragraph, which states in part:"“While the third parties disagree with the allegations contained in the Avaz affidavit, his evidence on the merits is irrelevant to thismotion, and therefore, the third parties will not be responding to them.

This should not be taken as agreeing with any part of the Avazaffidavit, or any waiver of the third parties [sic] rights, remedies, or positions on the merits, all of which are hereby reserved.”" [20] The purpose of an affidavit is to adduce facts relevant to the dispute without gloss or explanation (Duyvenbode v Canada (AttorneyGeneral), 2009 FCA 120 at para 2). This affidavit, which presents argument, not facts, was not considered. V.

Third Party Claims [21] The Federal Court of Appeal recently considered the Court’s jurisdiction over third party claims in the context of an intellectualproperty dispute in McCain Foods Limited v JR Simplot Company, 2021 FCA 4 ("“McCain”"). [22] McCain is an action for patent infringement. McCain Foods Limited ("“McCain”") claims to have rights in a patent entitled"“Process for Treating Vegetables and Fruit Before Cooking”".

In its statement of claim, McCain alleges that the defendants, includingJR Simplot Company ("“Simplot”)" use a system that incorporates a pulsed electric field ("“PEF”") to reduce the resistance of frozenfruits and vegetables to cutting after they are cooked, and therefore infringe the patent.

Simplot states that it purchased the impugnedPEF machine from Elea Vertriebs-und Vermarktungsgesellschaft, mbH ("“Elea”"), and that Elea also sold these PEF machines toMcCain. [23] Simplot brought a third party claim against Elea seeking a declaration that, to the extent that Simplot is found to have infringedMcCain’s patent:

i) Elea induced such infringement; (ii) Elea is liable, individually or jointly with Simplot, for such infringement andany remedies that may be awarded as a result thereof; and (iii) Elea is liable to Simplot in respect of its losses resulting from certainorders that might be issued in relation to such infringement (McCain at para 8). [24] Elea moved to strike the third party claim, which relief was ultimately granted by the Federal Court of Appeal.

[25] As set out in McCain at para 26, a third party claim must stand on its own as an independent proceeding, separate from the mainaction and not merely incidental to it (R v Thomas Fuller Construction Co.

(1958) Ltd, (SCC), [1980] 1 SCR 695, 106DLR (3d) 193 at 709; 744185 Ontario Inc v Canada, 2020 FCA 1 at para. 32 ("“Air Muskoka”").

That said, regard may be had to themain action if it assists in determining what is in issue in the related third party claim (Canada (Attorney General) v Gottfriedson, 2014FCA 55 at para 34). [26] In considering the jurisdiction of the Federal Court, the Court of Appeal in McCain referred to the following passage in AirMuskoka: [28] It is axiomatic that, as a statutory court, the Federal Court possesses only the jurisdiction that has been conferred upon itby statute (as well as such inherent powers of a superior court of record as are required to effectively manage and decidecases before the Court, as was noted in Canada (Human Rights Commission) v.

Canadian Liberty Net, (SCC), [1998] 1 S.C.R. 626 at paras. 35-38, 157 D.L.R. (4th) 385, and subsequent cases of this Court such as Canada(National Revenue) v. RBC Life Insurance Co., 2013 FCA 50 at paras. 34-36, 443 N.R. 378). Very frequently, the source ofthe Federal Court’s statutory jurisdiction is found in the Federal Courts Act itself. [29] However, there are constitutional limits to such jurisdiction. Under

section 101 of the Constitution Act, 1867, thefederal Parliament possesses jurisdiction to establish additional Courts “for the better Administration of the Laws ofCanada”. By reason of this limitation, the jurisdiction-conferring provisions in the Federal Courts Act were interpreted inconformity with the requirements of

section 101 of the Constitution Act, 1867 in a trilogy of cases decided several decadesago by the Supreme Court of Canada. [30] In ITO, the Supreme Court of Canada set out what has now become the universally-applied test for Federal Courtjurisdiction, drawing on the principles outlined in its earlier decisions in Quebec North Shore Paper Co. v. Canadian PacificLtd. (1976), (SCC), [1977] 2 S.C.R. 1054, 9 N.R. 471 and McNamara Construction (Western) Ltd. et al. v.The Queen, (SCC), [1977] 2 S.C.R. 654, 13 N.R. 181 [McNamara Construction].

As noted by theprothonotary, the ITO test requires a party seeking to bring a matter within the Court’s jurisdiction to establish three things: 1. There must be a statutory grant of jurisdiction by the federal Parliament; 2. There must be an existing body of federal law which is essential to the disposition of the case and which nourishes thestatutory grant of jurisdiction; and 3. The law on which the case is based must be a “law of Canada” as the phrase is used in

section 101 of the Constitution Act,1867 (U.K.), c. 3. [31] In analyzing whether a claim meets these requirements, it is necessary to characterize the claim to determine itsessential nature, or to use terminology sometimes used in the case law, to ascertain the “pith and substance” of the claim.Justice Karakatsanis described this portion of the analysis at paragraphs 26 and 27 of the majority reasons in WindsorBridge: 26. The essential nature of the claim must be determined on “a realistic appreciation of the practical resultsought by the claimant” (Domtar Inc. v.

Canada (Attorney General), 2009 FCA 218 , 392 N.R. 200, atpara. 28, per Sharlow J.A.). The “statement of claim is not to be blindly read at its face meaning” (Roitman v.Canada, 2006 FCA 266 , 353 N.R. 75, at para. 16, per Décary J.A.). Rather, the court must “lookbeyond the words used, the facts alleged and the remedy sought and ensure . . . that the statement of claim is nota disguised attempt to reach before the Federal Court a result otherwise unreachable in that Court” (ibid.; seealso Canadian Pacific Railway v. R., 2013 FC 161 , [2014] 1 C.T.C. 223, at para. 36; Verdicchio v.

R.,2010 FC 117 , [2010] 3 C.T.C. 80, at para. 24). 27. On the other hand, genuine strategic choices should not be maligned as artful pleading. The question iswhether the court has jurisdiction over the particular claim the claimant has chosen to bring, not a similar claimthe respondent says the claimant really ought, for one reason or another, to have brought. [32] When applying this analysis to a third-party claim, the third-party claim must be characterized separately from the mainclaim. As Justice Evans, writing for this Court, noted at paragraph 56 of Peter G. White Management Ltd. v.

Canada(Minister of Canadian Heritage), 2006 FCA 190, [2007] 2 F.C.R. 475 [Peter G. White] “[…] a claim not otherwise based onfederal law is not brought within the jurisdiction of the Federal Court merely because it arises from essentially the same factsas a related claim which is within federal jurisdiction”. (See also, to similar effect, Fuller at p. 711 and Canadian ForestProducts Ltd. v. Canada (Attorney General), 2005 FCA 220 at paras. 50-52, (sub nom. Stoney Band v.

Canada (Minister ofIndian Affairs and Northern Development), [2006] 1 F.C.R. 570 [Stoney Band]).) That said, regard may nonetheless begiven to the main claim to assist in ascertaining the essential nature of the third-party claim, as was done by this Court inCanada (Attorney General) v. Gottfriedson, 2014 FCA 55 at para. 34, 456 N.R. 391 [Gottfriedson]. [27] In determining the "“essential nature”" or "“pith and substance”" of the third party claim, I will separately consider the variousforms of relief sought. 1.

Damages for intentional infringement of copyright [28] There is no dispute that the Federal Court has jurisdiction over a matter that is, in essence, an action for copyright infringement.Subsection 20(2) of the Federal Courts Act, RSC 1985, c. F-7, provides the basis for Federal Court jurisdiction in matters where aremedy is sought under the authority of

an Act of Parliament or at law or in equity respecting copyright:

Industrial property, concurrent jurisdiction Propriété industrielle : compétenceconcurrente20(2) The Federal Court has concurrentjurisdiction in all cases, other than thosementioned in subsection (1), in which aremedy is sought under the authority of an Actof Parliament or at law or in equity respectingany patent of invention, certificate ofsupplementary protection issued under thePatent Act, copyright, trademark, industrialdesign or topography referred to in paragraph(1)(a). 20(2) Elle a compétence concurrente dans tousles autres cas de recours sous le régime d’uneloi fédérale ou de toute autre règle de droitnon visés par le paragraphe (1) relativement àun brevet d’invention, à un certificat deprotection supplémentaire délivré sous lerégime de la

Loi sur les brevets, à un droitd’auteur, à une marque de commerce, à undessin industriel ou à une topographie au sensde la

Loi sur les topographies de circuitsintégrés. [29] Patents (the rights at issue in McCain) are a statutory scheme (Apotex Inc. v Sanofi-Synthelabo Canada Inc., 2008 SCC 61 at para12). So is copyright. Copyright legislation simply creates rights and obligations upon the terms and in the circumstances set out in thestatute. The legislation speaks for itself and the actions of a party must be measured according to the terms of the statute (Compo Co Ltdv Blue Crest Music et al, (SCC), [1980] 1 SCR 357 at 372-373). [30] Unlike the Patent Act, RSC 1985, c. P-4, the Copyright Act defines infringement: "Infringement generally " "Règle générale ""27

(1) It is an infringement of copyright forany person to do, without the consent of theowner of the copyright, anything that by this Actonly the owner of the copyright has the right todo. " "27

(1) Constitue une violation du droit d’auteurl’accomplissement, sans le consentement dutitulaire de ce droit, d’un acte qu’en vertu de laprésente loi seul ce titulaire a la facultéd’accomplir. ""Secondary infringement " "Violation à une étape ultérieure ""

(2) It is an infringement of copyright for anyperson to " "

(2) Constitue une violation du droit d’auteurl’accomplissement de tout acte ci-après en cequi a trait à l’exemplaire d’une oeuvre, d’unefixation d’une prestation, d’un enregistrementsonore ou d’une fixation d’un signal decommunication alors que la personne quiaccomplit l’acte sait ou devrait savoir que laproduction de l’exemplaire constitue uneviolation de ce droit, ou en constituerait une sil’exemplaire avait été produit au Canada par lapersonne qui l’a produit : ""(

a) sell or rent out, " "

a) la vente ou la location; ""(

b) distribute to such an extent as to affectprejudicially the owner of the copyright, " "

b) la mise en circulation de façon à porterpréjudice au titulaire du droit d’auteur; ""(

c) by way of trade distribute, expose or offerfor sale or rental, or exhibit in public, " "

c) la mise en circulation, la mise ou l’offre envente ou en location, ou l’exposition en public,dans un but commercial; ""(

d) possess for the purpose of doing anythingreferred to in paragraphs (

a) to (c), or " "

d) la possession en vue de l’un ou l’autre desactes visés aux alinéas

a) à c); ""(

e) import into Canada for the purpose of doinganything referred to in paragraphs (

a) to (c), " "a copy of a work, sound recording or fixationof a performer’s performance or of acommunication signal that the person knows orshould have known infringes copyright or wouldinfringe copyright if it had been made in Canadaby the person who made it. " "

e) l’importation au Canada en vue de l’un oul’autre des actes visés aux alinéas

a) à c). " [31] In general, two classes of persons can sue for copyright infringement: the owner of the rights, and a person "“deriving any right, titleor interest by assignment or grant in writing from the owner”." [32] Subsection 41.23(1) of the Copyright Act provides: "General Provisions " "Dispositions générales ""Protection of separate rights " "Protection des droits distincts "

"41.23

(1) Subject to this section, the ownerof any copyright, or any person or personsderiving any right, title or interest byassignment or grant in writing from theowner, may individually for himself orherself, as a party to the proceedings in his orher own name, protect and enforce any rightthat he or she holds, and, to the extent of thatright, title and interest, is entitled to theremedies provided by this Act. " "41.23

(1) Sous réserve des autresdispositions du présent article, le titulaired’un droit d’auteur ou quiconque possède undroit, un

titre ou un intérêt acquis par cessionou concession consentie par écrit par letitulaire peut, individuellement pour sonpropre compte, en son propre nom commepartie à une procédure, soutenir et faire valoirles droits qu’il détient, et il peut exercer lesrecours prévus par la présente loi dans toutel’étendue de son droit, de son

titre et de sonintérêt. " [33] Subsection 41.23(1) is clear. To commence an infringement proceeding, Mr Beaver must own the works or have a right or interestby grant (i.e. a license) in writing. These are conditions precedent to commence any infringement action. [34] It is apparent on the face of the pleadings that no such ownership or license exists.

Mr Beaver is an alleged infringer of copyright.The existence of a license, express or implied, has not been pleaded as a defence. [35] In McCain, one of the grounds for dismissing the third party claim was that Simplot sought to assert against Elea a right held onlyby McCain (para 79). The same applies here: Mr Beaver seeks to assert a right against the third parties that it does not own.

Mr Beaverhas no standing to sue anyone for infringement of copyright in the works identified in the Claim. [36] It is therefore plain and obvious that claims for damages for copyright infringement (intentional or not) related to the worksenumerated in the Claim cannot be advanced by Mr Beaver against the third parties. This portion of the third party claim must be struck. [37] Striking a pleading without leave to amend is a power that must be exercised with caution.

If a pleading shows a scintilla of a causeof action, it will not be struck out if it can be cured by amendment (Al Omani v Canada, 2017 FC 786 at paras 32-35). [38] Given the complete absence of Mr Beaver’s ownership or a license related to the works asserted in the Claim, I am satisfied that thisdefect cannot be cured by an amendment. 2.

Damages for misrepresentation [39] On the face of the third party claim, it is not apparent if the misrepresentation allegations are based on fraudulent misrepresentationor negligent misrepresentation; for the purposes of this motion it does not matter. [40] There is no issue as to the constituent elements for each: The elements of a claim of fraudulent misrepresentation are: (1) a falsestatement by the defendant; (2) the defendant knowing that the statement is false or being indifferent to its truth or falsity; (3) thedefendant having an intent to deceive the plaintiff; (4) the false statement being material and the plaintiff having been induced to act;and, (5) the plaintiff suffering damages.

The elements of a claim of negligent misrepresentation are: (1) duty of care based on a specialrelationship between the plaintiff and the defendant; (2) an untrue, inaccurate, or misleading representation; (3) the defendant making therepresentation negligently; (4) the plaintiff having reasonably relied on the misrepresentation; and, (5) the plaintiff suffering damages asa consequence of relying on the misrepresentation (Singh v Trump, 2015 ONSC 4461 at paras 199-203; rev’d on other grounds 2016ONCA 747). [41] As a stand-alone cause of action, Mr Beaver concedes that a claim for misrepresentation is outside the jurisdiction of the FederalCourt, however submits that in the factual matrix of this proceeding, the third party claim is so closely associated with the issues arisingunder the Copyright Act that the parties’ rights are extensively governed by its framework and inextricably caught up in the jurisdictionof the Federal Court. [42] I cannot agree. [43] While copyright issues would certainly be part of a claim for misrepresentation, they would be incidental.

The essential nature, or"“pith and substance”" of the claim would be common law causes of action relating to the asset purchase agreement whereby Mr Beaveracquired business premises and equipment from the third parties. [44] Where the essential nature of the claim is based on misrepresentation, no part of the test in ITO-International Terminal OperatorsLtd v Miida Electronics Inc et al, (SCC), [1986] 1 S.C.R. 752 (“ITO”) test can be satisfied: (

i) there is no statutory grantof jurisdiction by the federal Parliament; (ii) there is no existing body of federal law that is essential to that the disposition of the caseand that nourishes the statutory grant of jurisdiction; and (iii) the law on which the case would be based is not a "“law of Canada”" asthat phrase is used in section101 of the Constitution Act, 1867. [45] I am therefore satisfied that it is plain and obvious that claims for damages for misrepresentation cannot be advanced by Mr Beaverin the Federal Court, and equally satisfied that these deficiencies cannot be cured by an amendment.

This portion of the third party claimmust also be struck, without leave to amend. 3. Damages for lost profits [46] As with the misrepresentation claims, the essential nature of the claims for lost profit are based on misrepresentation, breach ofcontract or other common law torts. Copyright issues would be a secondary consideration.

[47] I have discussed misrepresentation above. To the extent a claim for lost profits is, in essence, based on contract, the Federal Courtlacks jurisdiction to entertain such claims (Netbored Inc v Avery Holdings Inc, 2005 FC 490 at para 24). [48] I am therefore satisfied that it is plain and obvious that claims for damages for lost profits arising from an asset purchase agreementcannot be advanced by Mr Beaver in this Court, and equally satisfied that these deficiencies cannot be cured by an amendment. Thisportion of the third party claim must be struck, without leave to amend. 4.

Costs [49] The third party claim seeks two forms of costs: costs of defending the main action, and costs of the third party claim. [50] A request for costs of defending the main action is essentially another form of damage. Such a claim would not meet any part of theITO test. [51] I am satisfied that it is plain and obvious that a claim for costs of defending the main action cannot be advanced by Mr Beaver inthis Court, and equally satisfied that this deficiency cannot be cured by an amendment.

This portion of the third party claim must bestruck, without leave to amend. [52] Based on the foregoing, paragraphs 1(a), 1(b), 1(f), 9, 10, and 12 of the third party claim will be struck, without leave to amend. 5. Contribution and indemnity [53] In respect of claims for contribution and indemnity in the third party claim, I reach a different conclusion. [54] I begin with a review of the Supreme Court’s decision in McNamara Construction (Western) Ltd v The Queen, (SCC), [1977] 2 S.C.R. 654 ("“McNamara”").

In that matter, the Federal Crown entered into a contract with McNamara for theconstruction of a building in Alberta. The Crown alleged that McNamara breached the contract, and sued McNamara in the Federal Courtfor the breach. McNamara served a third party notice on a subcontractor.

McNamara also moved to have the statement of claim struckfor want of jurisdiction (page 657). [55] The Supreme Court determined that the Federal Court did not have jurisdiction, and struck the statement of claim (pages 663-4). [56] Addressing the third party claim in obiter, Chief Justice Laskin observed that "“if there had been jurisdiction in the Federal Courtthere could be some likelihood of proceedings for contribution or indemnity being similarly competent, at least between the parties, in sofar as the supporting federal law embraced the issues arising therein”" (page 664). [57] This passage was quoted with approval by the Supreme Court in ITO in support of the conclusion that the Federal Court may applyprovincial law incidentally necessary to resolve the issues presented by the parties (pages 781-782). [58] This is consistent with the plain language of Rule 193: “a defendant may commence a third party claim against a co-defendant, oragainst a person who is not a party to the action, who the defendant claims is or may be liable to the defendant for all or part of theplaintiff’s claim.” [59] I therefore conclude that a claim for contribution and indemnity may be advanced in a third party claim in the Federal Court. [60] This, of course, does not end the inquiry.

Even if a third party claim for contribution and indemnity can be brought in the FederalCourt, it is not enough to demonstrate that the contribution and indemnity claim arises from the same factual matrix as the action; theessential nature of the third party claim must be separately considered, and determined to be within the jurisdiction of the Federal Court. [61] If the third party claim in this proceeding was limited to contribution and indemnity, the essential nature of the third party claimwould be in copyright, a statutory scheme that falls within the jurisdiction of the Federal Court. [62] All of the causes of action in the Claim are based on the Copyright Act.

To the extent the defendant is found liable for infringementand required to compensate the plaintiff for that infringement, such liability will be based on the Copyright Act alone. [63] A third party claim for contribution and indemnity would therefore allow the Court to determine the central issues in the proceeding:does Planit Software own copyright in the asserted works; were those rights infringed; who is responsible for the infringement; shouldcompensation be paid; and who should pay it?

In this context, the parties’ rights in respect of the third party claim would arise under, andbe extensively governed by, a detailed statutory framework (the Copyright Act) sufficient to ground the jurisdiction of the Court (AirMuskoka at para 59). [64] Concluding that Mr Beaver may not advance a claim for copyright infringement, but may advance a third party claim forcontribution and indemnity is not inconsistent. In the former, Mr Beaver seeks to assert rights it does not own as a sword.

In the latter,Mr Beaver uses the third party claim as a shield so that it is not required to compensate Planit Software for acts of infringement that it didnot do or authorize. [65] Paragraph 10 of Planit Software’s reply alleges that its software was continuously used and reproduced on computers associatedwith Mr Beaver’s business in Canada since at least as early as February 2021.

While Mr Beaver does not have standing to sue the thirdparties for infringement of copyright in that software, whether the third parties were the first to reproduce Planit Software’s copyrightedworks on equipment now owned by Mr Beaver is a copyright issue, and would certainly inform whether the third parties shouldcontribute to or indemnify Mr Beaver for any liability arising from a breach of the Copyright Act. [66] The third parties place significant weight on the fact that the Copyright Act does not include a provision that expressly permits a

defendant to seek contribution and indemnity from a third party. That, however, does not preclude such a claim. [ 67 ] Planit Software is entitled to seek all available remedies in the Copyright Act . A third party claim based on contribution and indemnity would not expand or contract the remedies available to Planit Software, rather would permit the Court to determine the respective liability of Mr Beaver and the third parties for any copyright infringement.

Further, any liability of the third parties could only be based on whether their actions constituted copyright infringement. [ 68 ] I also note the recent decision in Bell Canada v L3D Distributing Inc dba INL3D , 2021 FC 832 , also a proceeding for infringement of copyright. The Copyright Act does not prohibit, or even mention, inducing acts of infringement. Justice Fuhrer however concluded that the common law cause of inducement was available to the plaintiffs.

The Patent Act is similarly silent on inducement, but there is an established test for inducing infringement of a patent ( Corlac Inc et al v Weatherford Canada Ltd et al, 2011 FCA 228 at para 162 ) .

If a party can be liable for inducing infringement of copyright or a patent, a cause of action not expressly included in the legislation, it is at least not plain and obvious that a claim for contribution and indemnity cannot be advanced in a copyright proceeding. [ 69 ] I acknowledge that a third party claim based on contribution and indemnity may require the Court to consider the contractual relationship between Mr Beaver and the third parties.

While the Federal Court lacks jurisdiction to determine purely contractual matters between private parties ( Salt Canada Inc v Baker , 2020 FCA 127 at para 45 ( " “ Salt ” " )) the Federal Court considers and interprets contracts in a wide variety of proceedings that are within its jurisdiction. [ 70 ] Salt involved an application for an order directing the Commissioner of Patents to vary the records of the Patent Office as they related to a particular patent.

The applications judge held that the Federal Court did not have jurisdiction over the application because it required the adjudication of a contractual dispute. That order was overturned on appeal. [ 71 ] The Federal Court has jurisdiction to order that an entry in the records of the Patent Office relating to the title of a patent be varied or expunged ( Patent Act ,

section 52 ). Justice Stratas concluded in Salt that the Federal Court has jurisdiction to decide a matter under

section 52 of the Patent Act , even if that involves interpreting agreements and other instruments (paras 47-48). [ 72 ] In reaching that conclusion, Justice Stratas cautioned against requiring parties to litigate in two forums – e.g. a superior court ruling on the contract, followed by a Federal Court ruling on

section 52 . In addition to being contrary to the purpose of

section 52 , this would burden litigants unnecessarily, and offend unwritten principles of access to justice (paras 32-33). [ 73 ] The same applies here. The essential nature of the third party claim based on contribution and indemnity would be copyright, which is within the jurisdiction of the Federal Court.

Requiring Mr Beaver to defend and advance claims based on copyright in different courts at different times would be needlessly costly and burdensome. [ 74 ] The third parties argue that the decision of prothonotary Lafrenière (as he then was) in Pembina County Water v Government of Manitoba , 2011 FC 1118 ( " “ Pembina ” " ) is on all fours with the issues on this motion. [ 75 ] In Pembina , townships in North Dakota sued the Government of Manitoba and Manitoba municipalities under the International Boundary Waters Treaty Act , RSC 1985, c I-17 ( " “ IBWTA ” " ) for blocking the flow of waters across the international boundary, resulting in flood damage on the American side of the border.

The municipal defendants issued a third party claim against municipalities and individuals in North Dakota for their action and inaction in that State. [ 76 ] Prothonotary Lafrenière struck the third party claim without leave to amend. The basis for doing so was the limitations of the IBWTA . He determined that it was clear on the face of the legislation, particularly

section 4, that it only applies to acts taken or committed in Canada that have caused injury in the United States. This

section creates an exceptional right for injured parties who have suffered injury on the United States side of the boundary to seek legal remedies in Canada. No reciprocal right is provided to Canadian entities or individuals (para 18). [ 77 ] Further, the third party claim in Pembina relied on provincial legislation ( The Tortfeasors and Contributory Negligence Act , CCSM c T90 ), and included claims based on negligence and nuisance (para 19).

The Federal Court does not have jurisdiction to adjudicate such claims. [ 78 ] I do not read Pembina as broadly prohibiting third party claims for contribution and indemnity in the Federal Court, rather that a third party claim for contribution and indemnity was not available to the defendants on the facts of that case. [ 79 ] The facts of this matter are different. If the third party claim is based on contribution and indemnity (which will be the practical result of this motion), there will be no causes of action based on provincial legislation or common law torts.

There will be no claim for compensatory damages against the third parties, other than contributing to or indemnifying the defendant for any copyright liability. The essential nature of the causes of action, defences and remedies will be in copyright, a matter over which the Federal Court has jurisdiction. [ 80 ] I am therefore satisfied that it is not plain and obvious that the third party claim seeking contribution and indemnity as it relates to copyright liability is certain to fail because it contains a radical defect; it will not be struck. This novel but arguable claim should proceed to trial. 6.

Punitive damages [ 81 ] The leading authority on punitive damages is Whiten v Pilot Insurance Co , 2002 SCC 18 ( " “ Whiten ” " ). At paragraph 94, the Supreme Court of Canada offered the following

summary of the principles governing awards of punitive damages:

(1) Punitive damages are very much the exception rather than the rule, (2) imposed only if there has been high-handed, malicious, arbitrary or highly reprehensible misconduct that departs to a marked degree from ordinary standards of decent

behaviour.

(3) Where they are awarded, punitive damages should be assessed in an amount reasonably proportionate to such factors as the harm caused, the degree of the misconduct, the relative vulnerability of the plaintiff and any advantage or profit gained by the defendant, (4) having regard to any other fines or penalties suffered by the defendant for the misconduct in question.

(5) Punitive damages are generally given only where the misconduct would otherwise be unpunished or where other penalties are or are likely to be inadequate to achieve the objectives of retribution, deterrence and denunciation.

(6) Their purpose is not to compensate the plaintiff, but (7) to give a defendant his or her just desert (retribution), to deter the defendant and others from similar misconduct in the future (deterrence), and to mark the community’s collective condemnation (denunciation) of what has happened.

(8) Punitive damages are awarded only where compensatory damages, which to some extent are punitive, are insufficient to accomplish these objectives, and (9) they are given in an amount that is no greater than necessary to rationally accomplish their purpose.

(10) While normally the state would be the recipient of any fine or penalty for misconduct, the plaintiff will keep punitive damages as a “windfall” in addition to compensatory damages.

(11) Judges and juries in our system have usually found that moderate awards of punitive damages, which inevitably carry a stigma in the broader community, are generally sufficient. [ 82 ] I note in particular item 8 in the passage reproduced above – that punitive damages are awarded only where compensatory damages, which to some extent are punitive, are insufficient to accomplish certain objectives. [ 83 ] To the extent the third parties are required to contribute to or indemnify Mr Beaver for amounts to be paid to Planit Software for copyright infringement, this is a form of damages. [ 84 ] While punitive damages can be difficult to obtain in intellectual property cases (e.g.

Dimplex North America Ltd v CFM Corp , 2006 FC 586 , aff’d 2007 FCA 278 ; Bauer Hockey Corp v Sport Maska Inc (Reebok-CCM Hockey) , 2014 FCA 158 ) it is at least possible that a compensatory award against the third parties for contribution and indemnity could be determined to be inadequate. It is therefore not plain and obvious that the third party claim for punitive damages is certain to fail because it contains a radical defect; it will not be struck. 7. Interest [ 85 ] The third party claim claims interest pursuant to the Courts of Justice Act , RSO 1990, c. C.43 .

The Courts of Justice Act is provincial legislation that only applies to proceedings in the courts of Ontario. The applicable legislation for proceedings in the Federal Court is the Federal Courts Act , RSC 1985, c. F-7 . It is therefore plain and obvious that the Federal Court cannot ground an award of interest on the Courts of Justice Act . Paragraph 1(

e) of the third party claim will therefore be struck, but with leave to amend. VI. Costs [ 86 ] The Court has full discretionary power over the amount and allocation of costs (subrule 400(1)). [ 87 ] In light of divided success on the motion, there will be no award of costs. ORDER in T-1779-21 THIS COURT ORDERS that : 1 . Paragraphs 1(a), 1(b), 1(f), 9, 10, and 12 of the third party claim are struck, without leave to amend. 2 . Paragraph 1(

e) of the third party claim is struck, with leave to amend. 3 . The motion is otherwise dismissed. 4 . There is no order as to costs. “Trent Horne” Prothonotary FEDERAL COURT SOLICITORS OF RECORD DOCKET: T-1779-21 STYLE OF CAUSE: PLANIT SOFTWARE LTD. v MR. BEAVER INC. AND BAHRAM MONDAI AFSORAN AND MORANA GROUP LTD.

PLACE OF HEARING: HELD BY VIDEOCONFERENCE DATE OF HEARING: APRIL 19, 2022 REASONS FOR ORDER AND ORDER: horne, p DATED: April 21, 2022 APPEARANCES : Ian Klaiman For The THIRD PARTIES Esmaeil Mehrabi For The DEFENDANT SOLICITORS OF RECORD : Lipman, Zener & Waxman PC Barristers and Solicitors Toronto, Ontario For The THIRD PARTIES Gowling WLG (CANADA) LLP Barristers and Solicitors Vancouver, British Columbia For The PLAINTIFF Mehrabi Law Office Barristers and Solicitors North York, Ontario For The Defendant