The recent CJEU judgment and subsequent national interpretation in Rovi Guides v Telenet will have a significant impact on the predictability of legal costs and should be taken into account when setting up an IP litigation strategy in Belgium.
Rovi Guides Inc (previously United Video Properties (UVP)) initiated an infringement action against Telenet NV on June 7 2011 based on European patent 1327209 (systems and methods for providing storage of data on servers in an on-demand media delivery system). Following a counterclaim by Telenet, the Belgian part of the patent was revoked on April 3 2012 by the Commercial Court of Antwerp on the grounds of lack of novelty. Although UVP initially lodged an appeal against that decision, it discontinued the appeal on August 14 2014 as parallel proceedings in the UK (against Virgin Media) had resulted in revocation of the patent on grounds of lack of inventive step. The only matter then to be decided in the Belgian proceedings was the allocation of legal costs. In order to understand Telenet's submissions to this regard, which prompted a CJEU referral, it is useful to consider the situation in Belgium before this case.
Reimbursement of lawyer and patent attorney fees
Under Belgian national law, the unsuccessful (or discontinuing) party in legal proceedings pays a flat-rate procedural costs indemnity to the successful party as compensation for the legal costs incurred. The flat-rate amount is not the same for all cases but depends on the value of the claim. Ranges for the flat fees have been fixed in a schedule by the Royal Decree of October 26 2007, which is at times updated. The courts have discretion to decide an amount within the relevant range, for which they can take many factors into account. The flat-rate amounts are intended to cover a party's lawyers' fees with a degree of certainty for the counterparty to avoid excesses. However in general only a minor part of the actual costs incurred is awarded. For instance, for a claim with a value between €100,000 and €250,000, the courts can fix a procedural costs indemnity of €1,200 to €12,000 (per instance). The maximum amount is €36,000 and is only for claims over €1 million. For claims which cannot be valued (as in the case at hand), the current maximum is €12,000.
Although there is a general understanding that the costs of a technical expert or adviser, such as a patent attorney, are not subject to the flat-rate amounts set for lawyers' fees, there was (vide infra) a different obstacle to overcome. According to case law of the Court of Cassation (the highest judicial instance in Belgium) such costs were recoverable only in the event of a fault (contractual or extra-contractual). Although the case law only referred to costs incurred outside the proceedings, as support for the claim or defence, and not to costs incurred as a result of the involvement of experts in the proceedings themselves (such as witnesses), the former is by far the most relevant in day-to-day practice.
This is in stark contrast with for example the Netherlands where in cases concerning infringement of IP rights, generally the full legal costs (lawyer and technical adviser/patent attorney fees) incurred by the successful party have to be compensated by the unsuccessful party.
Prejudicial questions to the CJEU
In the case at hand, Telenet submitted that the flat-rate reimbursement system for lawyers' fees and the case law of the Court of Cassation, allowing technical adviser costs to be reimbursed only in the event of a fault, were contrary to Article 14 of EU Directive 2004/48/EG on the enforcement of intellectual property rights. Telenet further requested that UVP be ordered to reimburse the full amount of lawyers' fees and patent attorney fees.
Article 14 of the Directive, entitled 'Legal costs', provides:
Member States shall ensure that reasonable and proportionate legal costs and other expenses incurred by the successful party shall, as a general rule, be borne by the unsuccessful party, unless equity does not allow this
The submissions by Telenet prompted the Court of Appeal of Antwerp to stay the proceedings and refer the following questions to the CJEU:
(1) Do the terms "reasonable and proportionate legal costs and other expenses" in Article 14 of Directive 2004/48 preclude the Belgian legislation which offers courts the possibility of taking into account certain well-defined features specific to the case and which provides for a system of varying flat rates in respect of costs for the assistance of a lawyer?
(2) Do the terms "reasonable and proportionate legal costs" and "other expenses" in Article 14 of Directive 2004/48 preclude the case-law which states that the costs of a technical adviser are recoverable only in the event of fault (contractual or extra-contractual)?'
Judgment by the CJEU (C-57/15)
The CJEU starts its assessment of the first question by stating that lawyers' fees are included in the concept of "legal costs" of Article 14 of the Directive. The Court then considers whether a flat-rate reimbursement system which does not take into account the costs actually incurred or the specific characteristics of the present case would be against the objectives of the Directive. A flat-rate system which is intended to ensure reasonableness of the costs to be reimbursed, taking into account factors such as the subject matter of the proceedings, the sum involved or the work to be carried out to represent the client concerned could be, in principle, justified. From the wording of the first question, the CJEU adopts the opinion that these requirements are satisfied by the Belgian legislation.
Legislation imposing a maximum flat-rate significantly below the average rate actually charged for the services of a lawyer in that member state would be incompatible with the Directive. The dissuasive effect of an action for infringement would then be seriously diminished if the infringer could only be ordered to reimburse a small part of the actual lawyer's fees incurred by the injured right holder. Thus, such legislation would be at odds with the fundamental goal of the Directive of ensuring a high level of protection of IP rights in the internal market.
Finally, the CJEU considers that the legal costs to be supported by the unsuccessful party must be "proportionate", which implies that the successful party should be able to recover, at the very least, a significant and appropriate part of the reasonable costs actually incurred by that party. Therefore, national legislation that lays down an absolute limit in respect of lawyers' fees must ensure, on the one hand, that that limit reflects the reality of the rates charged for the services of a highly specialised lawyer, such as lawyers specialised in the field of intellectual property. On the other hand it must ensure, that, at the very least, a significant and appropriate part of the reasonable costs actually incurred by the successful party are borne by the unsuccessful party.
Regarding the second question, the CJEU starts its assessment by stating that the costs incurred for the services of a technical adviser are included in the concept of "other expenses" of Article 14 of the Directive. The CJEU states however, that the "costs of identification and research" incurred, often before judicial proceedings, do not necessarily fall within the scope of Article 14 of the Directive. The court then considers that Article 14 must be interpreted narrowly, such that only those costs that are directly and closely related to the judicial proceedings concerned fall under "other expenses" within the meaning of Article 14. As a result, the Court considers that actions performed by technical advisers such as general observation of the market or detection of possible infringements of IP rights, attributable to unknown infringers at that stage, do not appear to show such a close direct link. However, services which are essential in order for a legal action to be usefully brought do fall within the scope of Article 14. Thus, such expenses must be borne by the unsuccessful party.
The CJEU eventually ruled in relation to the first question that the flat fee system is allowable in view of Article 14 as long as the maximum amounts provided by such a flat fee system can ensure that "a significant and appropriate part of the reasonable costs incurred by the successful party are borne by the unsuccessful party".
With regard to the second question, the Court ruled that Article 14 of Directive 2004/48 "must be interpreted as precluding national rules providing that reimbursement of the costs of a technical adviser are provided for only in the event of fault on the part of the unsuccessful party, given that those costs are directly and closely linked to a judicial action seeking to have such an intellectual property right upheld."
Decision of Antwerp Court of Appeal
The Antwerp Court of Appeal in its judgment decided that, since the flat fee system was upheld by the CJEU, the maximum (for non-monetary value claims) of €12,000 per instance was to be reimbursed by UVP (the actual cost of Telenet's lawyers' fees being €263,171.13). On top of that, the Court ruled that the full amount of patent attorney fees, €63,804.25, was to be reimbursed by the losing party as these costs were considered to fulfil the CJEU's requirement of being "directly and closely linked to a judicial action seeking to have such an intellectual property right upheld."
Higher degree of predictability
The CJEU's judgment and subsequent decision by the Antwerp Court of Appeal provide a higher degree of predictability of the legal costs to be reimbursed by the unsuccessful party. Parties seeking to uphold IP rights in Belgium, or who are faced with an infringement action, can now better estimate the costs they may recover if they are successful and, equally important, the additional costs they may incur if they are unsuccessful. The flat-rate reimbursement system for lawyers' fees was challenged at the highest judicial level and upheld. Furthermore, while before Rovi Guides v Telenet the patent attorney costs could only be recovered in case of fault on the part of the unsuccessful party, the full costs can now be recovered from the unsuccessful party if they fulfill the "directly and closely linked" criterion specified by the CJEU in C-57/15.
Thus, an intelligent partitioning of the litigation work between a lawyer and a patent attorney can result in higher amounts of recoverable legal costs in a successful court case in Belgium.
C-57/15 and Rovi Guides v Telenet further provide useful case law which can be cited in other EU states which, like Belgium, use a flat-rate system to determine the compensation for the lawyers' fees that is to be reimbursed by the unsuccessful party.