Litigation Costs in Intellectual Property Cases

This article was included in our Winter 2009/10 edition of Inside IP.

Costs play an important part in litigation and inevitably affect the decision as to whether to commence or continue with court proceedings.  This article provides an overview of the current position under English law and looks at some of the recent proposals that aim to bring litigation costs under control.

General rule: Loser pays

The general rule under English law is that the losing party will be ordered to pay the other party’s costs of the litigation.  However, the costs payable by one party to another are ultimately in the judge’s discretion.

Recovery of costs

For most significant intellectual property cases, the court will usually order the loser to pay part of the winner’s legal costs.  This is done by way of a “detailed assessment” of the winner’s costs, taking into account factors such as the value of the claim, importance to the parties involved, complexity of the issues, and the overall conduct of each side.

If there is any doubt as to the “reasonableness” or “proportionality” of the charged amount, the court normally errs on the side of the loser (the ‘standard’ basis of costs).  As a result, the amount the court will order the loser to pay is usually less than the total amount of the winner’s costs.  In practice, a rule of thumb is that the winner will be awarded between 65 and 75% of their total costs.  It is rare for the court to err on the side of the winner when assessing cost, but it may do so - on the ‘indemnity’ basis - and may award up to 90% where the loser has acted unreasonably.

Important recent developments

In recent years, however, concerns have grown about the high cost of litigation in the UK.  Therefore, in November 2008, Lord Justice Jackson was asked to carry out a comprehensive review of the English civil litigation costs system with the objective of reviewing the rules and principles governing the costs of litigation.  His preliminary report, published on 8 May 2009, recommended a radical change to the general principle that the loser pays the winner’s costs and instead proposed rules that will require the loser to pay only a part of the winner’s costs or, if the loser is the claimant, for each party to pay their own costs.

Furthermore, and importantly from an intellectual property perspective, Lord Justice Jackson’s recommendations included a reform of the Patents County Court procedures, following which the Working Group published its Consultation on Proposals for the Reform of the Patents County Court (June 2009).  It identified as the main problem the high costs involved in Patents County Court proceedings, which continued to create a barrier to all potential litigants, especially small and medium sized-enterprises.  As a result, these companies were still being “priced out” of the system and the proposals were thus aimed at making intellectual property litigation more affordable and accessible to such companies.

Costs cap

Arguably the most welcome of all the proposals is to limit the amount of recoverable costs.  In particular, it is proposed that the maximum total fees recoverable after a fully contested action for patent infringement and validity should be no more than £50,000.  For other intellectual property cases, it is proposed that the limit should be £25,000.  High Court proceedings, where these limits do not apply, will continue to be available for cases of high value or complexity.

£50,000 is by no means a small sum for many companies.  However, at present, small and medium sized-enterprises are often deterred from bringing or defending a claim because of the open-ended liability to the other side in the event of defeat.  What this proposal gives is greater certainty of the financial exposure that comes with bringing or defending a claim.  In practice, this should enable improved financial planning and risk management for any potential litigants.  In that respect, the proposals are certainly a step in the right direction for quicker and cheaper intellectual property litigation in the UK.

Jae-Woo (Jae) Park 05 Nov 2009

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