The Unified Patent Court: the future cost of patent litigation in Europe
The Unified Patent Court (UPC) is the first pan-European civil court and as such presents a number of new challenges. One such challenge is that of costs; both the fees which need to be paid in order to bring an action before the UPC and the level of costs a successful party can recover from the losing party. It is vital for the UPC’s success that an appropriate costs regime is adopted which is attractive to as many users of the system as possible, ranging from SMEs to multi-nationals. In attempting to achieve this aim the costs regime that is set to be adopted for the UPC is not ideal.
It must be remembered that the national courts of each participating member state have their own approach to the issue of costs and the costs regime for the UPC understandably attempts to combine a number of these different approaches. Further, the UPC is ultimately required to be self-funding (the UPC agreement states “the budget shall be balanced”) which creates tension in the context of a court which has been publicised as providing access to justice for SMEs. Seen in this context the current proposals are an understandable compromise but may well have an impact on how attractive an option the UPC will be for litigants.
The UPC will ultimately be the only court with jurisdiction over disputes concerning patents granted via the EPO regardless of when the patents were granted or whether or not they have unitary effect. However for the first 7 years at least the default position for European patents without unitary effect (“traditional EPs”), will be that they are subject to the jurisdiction of both the UPC and the relevant national court. During this transitional period, traditional EPs can be opted out of the jurisdiction of the UPC leaving the patent subject only to national litigation. Litigants will therefore have a choice as to where they can commence litigation and costs will be a relevant factor to be taken into consideration.
The UPC will in the main handle claims for infringement, revocation and declarations of non-infringement. The court of first instance will have a central division (which is split between London, Paris and Munich) and local and regional division in individual member states. Revocation actions and declarations of non-infringement will be brought at the relevant seat of the Central Division with the majority of infringement actions being brought at local or regional divisions.
To commence an action for infringement, the UPC court fee will comprise a fixed fee element and a value based fee. The fixed element for all infringement actions is €11,000. This same fee applies to counterclaims for infringement, and commencing an action for a declaration of non-infringement. For these matters there is also to be an additional value-based fee which must be paid in relation to all actions valued above €500,000. The value-based fee increases in bands with the top band (actions for more than €50,000,000) having a value-based fee of €325,000. To put this into context a claim for patent infringement issued at the High Court in England including a claim for unlimited damages would attract a fee of just over £10,000. This is only slightly higher than just the fixed fee element to be charged in all UPC infringement actions.
A revocation action at the Central Division of the UPC will simply have a fixed issue fee of €20,000. There will be no value based fee for such actions. If the revocation action is brought by way of a counterclaim to an infringement action, the fee is the same as that paid on the infringement action subject to a fee limit of €20,000. Currently to bring a revocation action before the English High Court the fee is £480.
The full list of court fees can be found here. It is however noteworthy that an application for provisional measures has a fee of €11,000, and an appeal will require the payment of a further fee in the same magnitude as that incurred in relation to the original action.
Small enterprises and micro enterprises are only required to pay 60% of the stated fees, although the remainder may be payable if the court thinks that the reduced fees are “manifestly disproportionate and unreasonable” in respect of the financial capacity of the applicant. There is also a penalty payment that the court can impose if it is found that the full fee should have been paid by a litigant. As an incentive to settle actions, there is a mechanism for reimbursement of a percentage of the court fee if the action is resolved between the parties before certain procedural stages have taken place.
Recovering Legal Costs
Of great interest to litigants is the ability to recover legal fees and other costs from opponents following success in an action. The general rule at the UPC will be that the unsuccessful party will bear the successful party’s costs. This concept will be familiar to users of the English courts. There are however a number of restrictions and exceptions to this general rule which will often rely on the exercise of judicial discretion. These are:
- Only “reasonable and proportionate” costs can be recovered
- In cases of partial success or in “exceptional circumstances” the Court may order the parties to bear their own costs or apply an apportionment of costs.
- A party who causes unnecessary costs will need to bear those costs regardless of the outcome of the proceedings
- The court will apply a specified ceiling to the costs that can be recovered. This is an absolute cap based on the value of the case.
Ceiling on recoverable costs
Although there is scope to reduce or increase the ceiling in limited circumstances the ceiling for recoverable costs sets the limit as to what costs can be recovered based on the value of the proceedings. For cases of a value of €250,000 or less, the ceiling is €38,000, rising on a scale basis up to a ceiling of €2,000,000 for cases of a value exceeding €50,000,000. The use of such a scale linked exclusively to the value of a claim makes the assumption that the cost of litigation increases proportionately in line with the value of the claim. This is not a correct assumption.
A case worth up to €4,000,000 (which has a cost ceiling of €400,000) could be just as complex as a case with a value of €50,000,000. The successful litigant in the €4,000,000 value case is therefore likely to have greater irrecoverable costs than the equivalent litigant in the higher value case. Further the ceilings fail to recognise that even for the lowest value claims the necessary procedural steps still need to be carried out. The lowest ceiling will in no way recompose a successful litigant in carrying out these basic steps. The costs ceiling therefore unfairly impacts on litigants with lower value claims.
Ultimately the success of the UPC will be dependent on how the costs regime operates in practice, and with plenty of scope for judicial discretion, the actions of the UPC judges will dictate whether the system operates fairly and promotes the access to justice promised by the UPC.
This update was prepared by Martyn Fish, HGF Law Partner.