The proposals for the reform of the Patents County Court have now been published and contain sweeping changes to procedure in the junior Intellectual Property (IP) court of England and Wales. Cutting through the extensive history and rationalisation, the main features are:
- The presentation of cases by sequential written arguments
- No experiments, factual evidence or expert evidence unless a cost-benefit analysis indicates that it would be productive
- Trials limited to one or two days with no cross-examination unless a similar cost-benefit analysis is satisfied
- Recovery of costs by the successful party limited to £50,000 in patent cases, and £25,000 in other IP cases, unless the conduct of the losing party makes it appropriate to award higher costs
- Rigorous case management to ensure the rapid progress of cases through the system
- The name of the court to be changed to the Intellectual Property County Court
The driver behind the proposals is the presumption that smaller businesses are deterred from exercising their IP rights because of the intimidating costs of proceedings, and the open-ended liability to the other side in the event of defeat. The report states boldly:
"The quality of justice available is undoubtedly important, but is generally regarded as secondary to ...costs factors. In particular, it is clear that SMEs would prefer to trade certainty that they would not be faced with a huge costs bill if unsuccessful, for restrictions on their ability to recover substantially all their own costs if successful."
Issues regarding the UK's obligation to provide a proper IP enforcement system under TRIPS are addressed, with the conclusion that the proposed reforms satisfy those requirements. The new system is openly based on the European Patent Office's (EPO) opposition jurisdiction, and regularly refers to that, and in particular the number of cases fought there each year, as evidence that a largely "paperbased" and "witness free" system can deliver appropriate results at a manageable cost level, encouraging SMEs in particular, to use the system.
The assumption in the proposals that, given the correct procedures and costs, the number of cases handled by the Patents County Court (PCC) could start to equate to the level of oppositions heard by the EPO is questionable. The EPO opposition procedure provides an early opportunity to challenge the validity of a patent for all the designated jurisdictions, with a strict "prompt" in the shape of a time limit. Furthermore, a challenge at the opposition stage does not prevent a further challenge at national level once the European Patent has matured into a bundle of national rights. As such the purpose and uses of the two procedures are fundamentally different. There is no reason to believe that the PCC will be inundated with a vast number of claims.
Distinctiveness as against the Patents Court is a major objective, with one of the complaints about the old PCC being that it effectively aped the High Court system and provided no significant differences in either procedure or costs.
The objective of the proposals is probably best summed up in the passage which reads:
"The new rules should have three core elements: first, an inherently cheaper procedure; secondly, limited and predictable costs recovery; and thirdly, proper differentiation from the High Court"
So, will these reforms work? What are the pitfalls? Will they achieve their objective?
Comments and criticisms
As a general point, I have some reservations about the assumption that any IP owner will happily trade "quality of justice" for costs certainty. I have not heard too many litigants saying "oh well, I lost, but at least it was cheap".
However, the effect of the cost limitations here are so sweeping that it may be that will be the view of potential litigants, and that they should at least be given a chance to try out such a system. They always have the option to use the High Court if they want the fuller procedure with cross-examination and experts.
This brings me on to my first substantive point. One area which is covered fairly lightly is the transfer procedure between the new PCC and the High Court, or vice versa. It is acknowledged that historically this has been a problem, with hearings of almost "trial proportions" to resolve the issue of which court should hear the case. In relation to this matter the paper merely states:
"Questions over transfer should not be permitted to develop into lengthy and costly disputes. They should be determined quickly and with the minimum formality".
Nice words, but is that achievable? Consider the action for revocation brought by a small start-up business against a major pharmaceutical company in order to clear the path for a new product. The case is started in the PCC, and the SME would argue that that is highly appropriate as it simply could not afford to risk the weight of a costs award if its action fails in the High Court. The major company, on the other hand, argues that the patent is vital to its market position and is potentially worth millions in revenue.
Whose interests prevail? What are the criteria going to be? Can it just be legal simplicity, or should the courts take into account the balance of commercial convenience? How can such issues be resolved easily and cheaply? Which court should resolve the issue, and how should the costs of that hearing be attributed?
I would not want this issue to bring down the new system, but some much more detailed thought needs to be given to how this issued is resolved case by case. The Intellectual Property Lawyers Association (IPLA) has suggested that the issue could be partly addressed by what effectively amounts to alternative dispute resolution - the bigger company being given, inter alia, the option to "buy out" the claim, or offer a limited licence in order to preserve its patent in circumstances where it might otherwise be vulnerable in a jurisdiction where experts and cross-examination were not available. The merit in this is clear but it is hard to see how it could be dealt with by compulsion.
Another possibility to resolve this issue might be to define very closely the financial limits so that the financial position of both parties is taken into account. Accordingly, in the case of a revocation action (or any action where the validity of the patent is in issue) the actual or anticipated turnover of the patentee in relation to products or processes protected by the patent in suit should be taken into account.
Then, of course, there is the question of appeals. The "certainty" of a small company litigating in the new PCC could be blown away by an expensive appeal. The IPLA has proposed a limit of £25,000 for the costs recoverable on appeal. I suspect that achieving that is not as easy as it sounds. Setting up a "separate procedure" for a separate court is one thing but singling out one type of appeal from another for the purposes of the treatment of costs may be a very different proposition.
Where I believe that the proposed changes become really fanciful is in the notion that serious patent disputes can take place without experts. It is possible that a handful of cases in really basic areas of technology could be run without experts. However, it is unlikely that a court could satisfactorily hear a case where the technology had any degree of complexity without assistance from an expert. There has been no suggestion that a "court appointed" expert should be considered, nor that the parties should seek to agree on a single expert subject to an agreed brief - two proposals which have emerged in different discussions about court reform in the UK.
The danger is, and this applies equally to witnesses of fact and to experiments, that a "presumption against" emerges. In fact it is almost written into the proposals. For all the benefit which a cost-efficient junior court system might bring, it will fall into disrepute and quite possibly disuse, if it does not (and is not seen to) dispense good justice. A series of high-profile appeals could unseat the system, as it did with the very first incarnation of the PCC. Parties must be able to present their case as well as possible. The safeguard for the other side is in the form of the costs cap.
The costs cap
This is a controversial issue, but one which must be understood in context. There is no suggestion that £50,000 is what it costs to run a patent case. That is not the point - it is a relatively nominal compensation for costs incurred in a winning cause, designed to deter the most vexatious of litigants, but not to discourage those with good cases but small bank accounts. To that end, I think that the figure is pitched about right.
However, I can see no justification whatsoever for limiting the sum still further in non-patent IP cases. Trade mark cases get more and more legally complex, and what if surveys are necessary? The proposals are silent on that issue, but it would be utterly unfair to rule out any survey evidence. Copyright cases need factual evidence of copying in many cases, and as for "passing off", any consideration of the requirements reveal the costly nature of establishing a case.
The justification that patent actions can be "double actions" with infringement and validity both in issue does not stand up to scrutiny. The proposals do not say that if the action is purely for revocation, or purely for infringement, then the cap should reduce to £25,000. I believe that the cap should be £50,000 across the board for IP cases.
There is a proposal that the parties should be encouraged to attempt mediation at the case management conference. That is no different to the position now in both the PCC and the Patents Court. However, mediation can be quite costly and some provision for this needs to be set out. The cost of the mediator, the preparation for and attendance at the mediation, and the preparation of any settlement agreement, can easily run up quite significant sums in costs.
I was on the panel of mediators appointed by Judge Ford at the outset of the PCC. While in the intervening period I have conducted a very large number of mediations in IP cases through the Centre for Effective Dispute Resolution (CEDR), or more recently in my personal capacity, I have never been called upon by the PCC, and I am not holding my breath!
The general proposal is that the pleadings will stand as evidence. They will be backed by a statement of truth, and on that basis will have the same standing as a witness statement.
The "lawyer" in me cannot help but be slightly squeamish about this. For one thing, if the "cost benefit analysis" is met, does that mean that the person who signs the statement of truth can be cross-examined? If so, then there will have to be strict rules to ensure that the signatory is the right person - not just a senior employee of the company, and certainly not their lawyer or patent attorney!
That brings me to my final point. No one would argue for a minute that this should be a determinative, or even an influential factor, but I do fear that this proposal will change the dynamics in the relationship between solicitors and patent attorneys. There is no need to spell out the issues - they will be clear to anyone who has practiced in England and Wales in this field. However, with proposals for multi-disciplinary partnerships, non-partner investment in professional firms, and now the blurring of the distinctions between the respective roles of the professions, it can only be a matter of time before the first "super-firm" emerges in the IP world. Still, who can stand in the way of progress?
In general terms I welcome these proposals. The value of IP rights is significantly diminished if they are not enforceable in a cost-effective and proportionate manner. The safeguard of the "full process" of the High Court remains for cases of high value, so why not give this a try? The European Patent Court is, in relative terms, just around the corner, and this may well be a good way to introduce the UK professions to the type of procedure which they will have to get used to in due course.