As reported by us here, the UPC Preparatory Committee has been running a consultation exercise on the proposed court fee structure for the UPC, and the scale of ceilings for recoverable costs. The consultation document contained draft versions of rule 370 of the Rules of Procedure (dealing with Court fees), together with a table of court fees and draft scale of ceiling on recoverable costs. The consultation period ended on 31 July 2015. Submissions have been made by many interested parties. The Preparatory Committee may publish later in the year a summary of the responses which it has received, but this is not its invariable practice. Instead, it may simply consider the submissions it has received before publishing a final version of the court fee structure.

Some common themes emerge from the submissions of which we are aware.

Comments made by the UK Intellectual Property Lawyers Association (“IPLA”) include:

  • Of the two proposals for reduced court fees, Alternative 1 (reimbursement of 20-60% where actions are withdrawn, settled or heard by a single judge) is preferred over Alternative 2 (full exemption from value-based fees for small and medium sized businesses (“SMEs”), non-profit organisations, universities and public research organisations).
  • IPLA suggests that Alternative 2 goes beyond the power of the UPC in light of Article 36(6) UPC Agreement (which allows targeted support measures for “SMEs and micro-entities”, but does not envisage reductions for non-profit organisations, universities or public research organisations). IPLA also suggests that Alternative 2 is unfair, inefficient and likely to give rise to abuse. The unfairness arises as Alternative 2 discriminates between a business unit within a larger group which is required to operate within the financial constraints of that unit without recourse to the resources of the wider group, and a comparable business which does not form part of a larger group. It is also unfair that a company which is just too large to qualify as an SME is subject to a value-based fee which could be far larger than the marginal difference in turnover compared to a company which is just small enough to qualify. IPLA comments that, since the definition of “SME” in the Annex to Commission Recommendation 2003/361 is not completely clear, Alternative 2 could give rise to inefficient satellite litigation as the parties wrangle over entitlement to the discount. Finally, the potential for abuse is clear. Since the exemption from paying a value-based fee could be a significant financial advantage, a patentee could well be motivated to take steps to secure that advantage (for example by transferring the patent(s)-in-suit) to a special purpose vehicle set up with limited capital (or no capital) for the purpose of the litigation. This type of tactic is well-established in the US in patent infringement claims by some patent assertion entities, so the risk that it will spread to the EU is a real concern.
  • There is a risk of duplication of the value-based fee in certain scenarios. For example, the current proposals provide that a value-based fee will be payable on an appeal (both a final appeal and an interim appeal). This is wrong in principle, as it will lead to duplication.
  • The current proposals provide for a fixed fee (but no value-based fee) to be paid on a counterclaim for revocation. Whilst the absence of a value-based fee is welcome, no fee should be payable as a matter of principle on a counterclaim for revocation.
  • The proposed opt-out fee should be dropped, as IT goes beyond the power of the UPC in light of Articles 41 & 70(1) of the UPC Agreement. Those provisions only authorise the adoption of rules of procedure, and fees, in respect of proceedings before the UPC. Opt-out does not amount to such proceedings. Also, as a practical matter, it is difficult to see how the proposed opt-out fee (€80 per patent) is a fair reflection of the costs incurred by the UPC in administering the opt-out process, as it should be dealt with online, entirely automatically, via the Court’s case management system.
  • The Court has no mechanism for enforcing payment of any value-based Court fee (which do not fall due for payment until the value of the case is determined by order of the judge-rapporteur in the interim procedure). If the only consequence of the failure to pay the value-based fee is a stay of the claim, this may give a claimant who has lost interest in the claim following the written procedure a way out without a formal settlement or withdrawal of the claim. It can simply withhold payment, and have its claim stayed indefinitely.
  • It is unclear how the value in dispute should be calculated. Draft guidelines on this issue have reputedly been drawn up by the Preparatory Committee, but have not yet been released for consultation. IPLA urges the Preparatory Committee to do so as soon as possible.

The UPC Industry Coalition has also submitted comments in response to the consultation. The UPC Industry Coalition is a group of leading tech companies (including Microsoft, HP, Cisco, Intel, Dell) and tech trade associations (such as the European Semiconductor Industry Association). Many of its comments echo those raised by IPLA. In particular:

  • The UPC Industry Coalition also prefers Alternative 1 over Alternative 2. Given the membership of the UPC Industry Coalition, it is not surprising that it is concerned about any arrangements which could make the UPC attractive to Patent Assertion Entities. The UPC Industry Coalition believes that the risk of abuse of the fee reductions for SMEs under Alternative 2 is too high (since Patent Assertion Entities will normally qualify as SMEs).
  • Alternative 1 should be amended so that it does not incentivise early settlement which is not merits-based. The UPC Industry Coalition identifies incentives in the US litigation system to enter into early settlements which are not merits-based as one cause of the ‘patent troll’ phenomenon in the US, which it wants to avoid in the UPC. So it suggests that the fee discounts for settlement or withdrawal be dropped. It is also concerned that the proposed discretion (paragraph 7 of both Alternatives) for the Court to allow reimbursement of the fixed fee and/or reduction of any value-based fee where the fees “threaten the economic existence of a party” could be improperly used by licensing/assertion entities to avoid court fees.
  • The value-based fees for high values in dispute (above €2M) are lower than those currently payable in German litigation, and should be increased to match German levels. This should discourage a claimant from exaggerating the value of the claim.
  • The application of the ceiling on recoverable fees in multi-party, multi-patent claims and claims which are met with a counterclaim should be clarified. Also, the liability of multiple parties to pay adverse costs awards should be clarified as between themselves. For example, should the liability to pay the costs award be apportioned between the multiple losing parties? Or should the winning party be entitled to recover the full costs award from any of the losing defendants?

The final draft version of the UPC costs arrangements is due to be published by the UPC Preparatory Committee in Autumn 2015. Only the Administrative Committee of the UPC has the power formally to adopt the table of court fees and the scale of ceilings for recoverable costs (Articles 36(3) and 69 of the UPC Agreement and Rule 152(2) of the RoP), so the UPC costs arrangements will remain in draft form until the UPC Agreement has been ratified by enough Contracting States to enter into force. At that point, the Administrative Committee will be constituted (Article 12 of the UPC Agreement) and one of its first agenda items will be to adopt the UPC costs arrangements as prepared in draft by the Preparatory Committee.