Since the Unified Patent Court (UPC) came into being on 1 June 2023, practitioners have been reading the runes of the early decisions for signs of how the new European legal order for patents will shake out. A number of early indications have been provided giving insight on the availability of preliminary injunctions, the use of protective letters and the languages regime, amongst other issues, but one area that is still open to a degree of speculation is the costs regime, and particularly how recoverable costs (that is, costs paid by the losing party to pay the legal fees of the winning party) will be handled in practice.
A recent decision from the Munich branch of the Central Division (under order number ORD_574057/2023) gives some clues, particularly on the thorny issue of granting security for costs.
Recoverable costs
Unlike some international jurisdictions such as the US, and unlike the EPO (except in exceptional circumstances), the UPC provides that the loser pays the winning party's legal costs. There are of course limits to this fee-shifting arrangement, both in terms of the total value of such costs that can be sought and the circumstances in which they will be granted. An important factor is that the total costs available are capped according to the value of the action, with the basic structure provided below:
There is some room for the Court to exceed the ceilings if unusual situations occur, but in the main they are expected to represent the maximum liability possible for a given value of action. Determining that value is itself open to debate, particularly where there isn't an ongoing infringement at issue with a scale and commercial significance that can be quantified.
The ceilings are not target or expected values, rather they represent an upper cap absent exceptional circumstances. The relevant rules explain that "Firstly, only reasonable and proportionate legal costs and other expenses incurred by the successful party may be recovered from the unsuccessful party. Moreover, equity may also serve as a self-standing ground for rendering the general rule inapplicable. Furthermore, in case of partial success or in exceptional circumstances, the Court may order the parties to bear their own costs, or apply a different apportionment of cost, based on equity. Unnecessary costs caused to the Court or the other party shall be borne by the party incurring them, which means that even the successful party has to reimburse costs caused that are deemed unnecessary by the Court."
Security for costs
Given the regime described above, a party entering into an action at the UPC must take into account the potential effect on the bottom line should they lose. Moreover, in some circumstances a party may be obliged to provide "security" for these costs during the proceedings themselves – i.e. even before they lose. There is a balance to be struck here between protecting the interests of the prevailing party and avoiding a system in which the risk of being subject to such orders proves inhibitive to smaller enterprises looking to bring, or even defend, actions.
The decision in ORD_574057/2023 gives some useful guidance on how these principles will play out in practice. This case related to a request for security for costs during a revocation action which was part of a larger dispute involving NanoString. Preliminary injunctions had been sought against Nanostring in earlier UPC proceedings, one of which was successful, and now Nanostring sought to revoke European patent 2794928 in the instant case. The patentee sought security for costs in this proceeding and was successful in obtaining an order for €300k.
In making the decision to order security for costs, the Central Division in Munich considered a number of factors, not least that Nanostring had themselves indicated in proceedings relating to the provisional injunctions that such an outcome would have significant commercial consequences for them. This was taken to indicate a meaningful risk that Nanostring may not be sufficiently solvent to pay costs once the proceedings were concluded, thereby weighing in favour of the grant of a security.
Other factors included Nanostring's domicile outside of the contracting states of the UPC (and therefore the additional administrative burden in enforcing any costs order) and the fact that in the Court's view Nanostring had not provided sufficient evidence to overcome doubts on its overall financial position.
How much?
With the decision taken that security for costs was warranted, the question turned to the precise amount. The patentee had asked for €600k based on the ceilings provided above (with the value of the case asserted to be €7.5m). Perhaps surprisingly, although they did dispute the principle of providing a security at all, Nanostring failed to provide any arguments at all against the proposed value of €600k. Nor indeed did the patentee provide any evidence of the actually incurred costs or how they were fair and proportionate.
With this lack of information to hand, the Court could perhaps have simply used the only figure provided, but instead chose to reduce it substantially, halving the value provided. The Court's decision to do so on its own initiative gives a clear signal that the ceiling is just that – a ceiling and not a starting point.
Lessons
There are clear points to take away from the Court's reasoning here, particularly on whether a security will or should be granted. Perhaps most importantly, parties should recognise that their words in all proceedings, and perhaps elsewhere, can and will be taken against them; heightened rhetoric around the significance of a dispute can put into question a party's long term viability, making an order for security for costs more likely. Moreover, it is not just enough to assert that a business has been viable in the past to show that it will be viable in the future, a party should be ready to disclose underlying details of its finances if it wishes to ensure the Court will take its assertion of sustainability seriously.
Costs orders are a feature of the UPC that are here to stay and will form an important part of any litigation strategy.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
