The reformed Patents County Court (PCC) began its new life on 1 October 2010 aiming to provide a forum in which companies, and SMEs in particular, could resolve their IP disputes before a specialist IP judge in a cost-effective manner. Under the stewardship of HHJ Birss QC, the court has dealt with all manner of intellectual property disputes and has been successful in achieving this aim. A key factor in this success has been the £50,000 cap on costs recovery from a losing party which provides much needed certainty to litigants (particularly SMEs) contemplating litigation.

Two years after the introduction of these rules, three cases have recently come before the court which provides further guidance on how this cap is to be applied. More particularly, the issues to be decided were:

  1. what is a successful claimant able to recover where there is more than one defendant? (Gimex International Groupe Import Export v The Chill Bag Company Ltd & Ors [2012] EWPCC 34);
  2. where there is more than one successful defendant, what are they entitled to recover from a single claimant? (Liversidge v Owen Mumford Ltd & Anor [2012] EWPCC 40); and
  3. where a successful party has lost on certain issues in the case, how should this be reflected in their costs recovery? (BOS GmbH & Co KG v Cobra UK Automotive Products Division Ltd (in administration) [2012] EWPCC 44)

The outcome in all three cases is refreshingly clear and reinforces the fact that the maximum exposure of a losing party in the PCC (save for truly exceptional circumstances) will be no more than £50,000.

Background - The Civil Procedure Rules and Westwood v Knight

Costs are ultimately a matter of the judge's discretion. Nevertheless, the general rule is that an unsuccessful party should pay the costs of a successful party, bearing in mind certain circumstances which may affect the overall recovery (Part 44 of the Civil Procedure Rules (CPR)). However, in the PCC there are also specific rules on costs which are set out in Section VII of Part 45 of the CPR.

The application of these rules was considered by HHJ Birss QC in the case of Westwood v Knight [2011] EWPCC 11 which remains the starting point for a party seeking to recover costs in the PCC. The approach can be summarised as follows:

  1. The court must decide which party is liable to pay the costs and to whom. The payer will often be the unsuccessful party but sometimes an 'issues based' approach will be more appropriate.
  2. In the PCC, a party is entitled to recover costs for certain prescribed stages of proceedings (not all of which will apply in every case). In relation to each stage:
    1. the court will make a summary assessment in respect of each stage (rule 45.41(3)) which involves considering whether the costs were proportionate to the matters in issue (bearing in mind the matter is in the PCC); and then
    2. there is a maximum amount which can be recovered for each stage set out in the CPR. A party cannot recover more than this amount for a specific stage and if the summary assessment comes out as a lower figure, this is likely to be appropriate. A summary table showing the maximum recovery of costs for each stage is set out below.
  3. There is a maximum cap on total recovery, set out at £50,000. If the total of the stages exceeds this figure then the party will only be entitled to recover the maximum of £50,000.

The court made it very clear in Westwood v Knight that parties should not expect to recover the full £50,000 in each case, and this has certainly been the case in subsequent cases. Nevertheless, the approach has proven to be relatively straightforward to apply and easy for parties to understand.

Multiple parties (Gimex v The Chill Bag Company & Liversidge v Owen Mumford)

The judgments in Gimex v The Chill Bag and Liversidge v Owen Mumford were handed down on the same day and both consider how costs recovery in the context of multi-party litigation is dealt with in the PCC. Both cases raised the question of how the court would balance "a compensatory approach to costs against certainty for litigant". In each case, the court came down in favour of certainty for litigants.

In Gimex, the claimant successfully sued five defendants for infringement of its registered community design for a product called the Ice Bag. The defendants were split into two 'camps' which each filed separate pleadings and evidence and were separately represented. The claimant had incurred costs of £119,000 in total and sought approximately £45,000 from each 'camp' under the PCC costs rules.

The claimant submitted it was fair that it should be entitled to recover two sets of capped PCC costs, because no single defendant would be required to pay more than the £50,000 cap.

HHJ Birss QC disagreed. Firstly, he noted that most of the claimant's costs had been incurred in relation to issues which were attributable to the proceedings generally and for which both sets of defendants were jointly and severally liable. Secondly, he emphasised the importance of certainty in the PCC costs regime and the aim of the court to "facilitate access to justice for small and medium sized enterprises in intellectual property disputes". The fact that exposure to costs is capped at £50,000 plays a large part in persuading claimants and defendants to litigate where appropriate, in circumstances where they would previously have been discouraged from doing so due to costs.

As a hypothetical example of the unfairness of the compensatory approach, counsel for the claimants in Gimex had used the example of two or more successful defendants claiming against a single claimant. The judge had provided obiter comments on the issue, but in Liversidge the exact same issue arose. In this case, it was the two defendants, rather than the claimant, who won.

The defendants were found not to infringe the claimant's patent and successfully counterclaimed for revocation of that patent. Each defendant had been completely separately represented during proceedings. They both claimed their costs under the PCC costs rules, which came to £36,000 and £38,000 respectively, and sought to recover them from the claimant. This would have resulted in the claimant being required to pay about £73,000 in total.

The defendants submitted that the costs caps in Part 45 of the CPR applied to 'a claim' and where multiple defendants were being sued there were multiple claims, albeit one set of proceedings. This was rejected by the court which held that the maximum liability of an unsuccessful claimant against multiple successful defendants was £50,000. Once again, the court referred to the policy considerations set out in Gimex and summarised above.

Nevertheless, the judge noted the defendants' concerns that unlike a successful claimant, a successful defendant has no control over how many parties the claimant claims against and it cannot therefore limit the costs it incurs in defence of the claim according to the number of parties involved. There is a real risk that claimants may try to join multiple defendants to a case and seek to shield its costs exposure by hiding behind the cap in the event that it loses.

In these instances, HHJ Birss QC held that such issues should be apparent at an early stage in proceedings and the matter should be raised, and addressed if necessary, at the Case Management Conference (CMC). By way of an example, the court may simply stay the claims against all but one defendant pending trial where multiple defendants are added to the same proceedings. However, each matter would need to be approached on a case-by-case basis.

Multiple issues (BOS v Cobra)

In BOS v Cobra the court was required to consider the extent to which a party should be penalised for losing part of the case, despite winning overall, and how this could be effectively implemented under the PCC costs rules.

In BOS v Cobra, the defendant was held not to infringe the claimant's patent for a luggage safety net, designed for use in estate cars in particular, and also successfully counterclaimed for invalidity. The defendant was therefore indisputably the overall winner. However, its submissions on two infringement arguments and two pieces of prior art were rejected. Such matters accounted for roughly 25% of the case in total.

The judgment of Sir Robin Jacob in MMI v Cellxion [2012] EWCA Civ 139 recites how the issue-by-issue approach is to be applied in the High Court when a successful party has won overall but lost on certain issues. The court has to ask two questions:

  1. are there issues on which the winner should be deprived of its costs? and
  2. are there issues which are suitably exceptional that the winner should actually pay the loser's costs of those issues?

Each party had incurred a similar amount in costs in respect of the claimed stages (roughly £175,000) and accepted that some deduction was necessary in respect of the unsuccessful points, which amounted to roughly 25% of the proceedings.

The claimant argued that the unsuccessful issues all fell into the second category identified in MMI v Cellxion and that it should be entitled to its costs of dealing with the same. This would result in a deduction to the defendant's claimed costs of 50% (a reduction of 25% for costs which the defendant was unable to recover, and a further 25% as payment of the claimant's costs).

The defendant submitted that all the issues on which it lost fell within the first category and the deduction should be no more than 25%. HHJ Birss QC held that only one item of prior art (representing 10% of total costs) fell within the second category and the rest fell into the first category. The defendant was therefore not entitled to its costs of the unsuccessful issues (25%) and had to pay the claimant's costs for one piece of prior art (10%).

However, a more fundamental dispute concerned the manner in which the deduction to the defendant's costs should be applied in the context of the PCC costs cap and summary assessment.

The claimant submitted that the deductions should be made after the scale cap had been applied at each stage. The amounts claimed were sufficiently large in some of the stages that, to hold otherwise, the defendant would still recover the full cap amount. This would mean the issues-based approach would be no deterrent and would provide a positive incentive for parties to run bad points.

However, HHJ Birss QC held that any deductions are made before the cap is applied. Part 45 of the CPR states that the maximum £50,000 cap on trial costs in the PCC applies once the court has applied any set off. While this refers to the overall cap, and not the scale costs, HHJ Birss QC held that both set off and deductions should be applied before the scale limits are applied. Furthermore, the active case management in the PCC, evident in particular at the CMC, is intended to 'weed out' bad points and means that parties will not be able to run bad points. However, if bad points do happen to slip through the cost benefit analysis at the CMC, a party running such a point is not immune from deductions when these issues are looked at in more detail post trial.

The fairness of the deduction also needs to be considered in the context of the £50,000 maximum costs cap, given that the costs of running or defending an IP case will often exceed the maximum costs recovery figure. In such circumstances, an unsuccessful claimant enjoys the benefit of the cap. Had the action been heard in the High Court it would have been liable for a much higher amount.

Finally, it was held that the deductions apply to every stage of the case rather than those specific stages to which the unsuccessful issues can be properly attributed.

Comment

Each of these cases shows the court's desire to be an effective forum for intellectual property disputes involving SMEs.

The multi-party disputes clearly reflect the importance the court attaches to a costs regime which provides certainty to litigants. There are substantial benefits to an unsuccessful litigant (either claimant or defendant) who knows that the maximum it is liable for in the event of a loss is £50,000 irrespective of the number of parties involved. However, the outcome for successful defendants in multi-party litigation is less attractive. Unlike successful claimants in such circumstances, they will not have the benefit of damages and an injunction to soften the blow on costs.

Instead, in the event the total claimed from the claimant exceeds the cap, they must share the £50,000 with their co-defendants, meaning they are unlikely to recover a significant amount towards their respective costs in defence of the claim. This could lead to further satellite litigation between successful co-defendants about how such costs are to be divided. Furthermore, the knowledge that costs recovery is likely to be low for a defendant where there are co-defendants joined to the case is likely to lead to increased pressure to settle the dispute at an early stage of proceedings, irrespective of the merits of the case.

By ensuring that any deductions for running bad points apply before the cap is applied, but also ensuring that summary assessment accounts for the fact that figures must reflect the fact the parties are in the PCC, the court strikes an appropriate balance. It provides a disincentive to a party to run bad points, but not to the extent that the penalties are so severe so as to prevent a party from properly defending the claim for fear of the potential adverse costs consequences, even in the event that they are successful.

In any event, the CMC should act as a filter preventing any really bad arguments from progressing. The outcome also has the benefit of making the task of assessing costs in the PCC simple for parties to understand.

Finally, all three decisions indicate the importance of the CMC in PCC matters. If parties have any concerns over how multi-party litigation is to be managed, then the CMC is the appropriate time to raise such concerns.

Scale costs for each stage of proceedings Part 45 of the CPR, Section VII

Click here to see table.