Published: 07 December 2016
Area of Law: Intellectual Property
Changes ahead for IP disputes?
A recent decision has raised the possibility that the cap on costs for certain IP litigation may not be as secure as had previously been thought, and this has implications for how best to conduct IP cases. The costs cap has been a feature making IP litigation attractive in this jurisdiction, and undermining it raises the possibility at least that potential litigants may be less sure about whether they wish to enforce or defend their rights.
In an Intellectual Property Enterprise Court (IPEC) judgment handed down on 30 November 2016 (BPP v Hagan) , His Honour Justice Hacon has held that indemnity costs awarded pursuant to CPR Part 36 are not subject to the overall or staged caps on cost recovery in IPEC.
There has always been tension between the costs sanctions under CPR Part 36 for the early settlement of disputes, and the upper limits on recoverable costs available in IPEC.
This decision is a departure from the status quo and its significance should not be understated, particularly given that one of the key benefits of IPEC for prospective claimants (and defendants) is the scale costs regime and the certainty that the losing party will only be liable to pay up to a maximum of £50,000 of the other party’s costs.
The importance of the IPEC scale costs had been underlined in a number of IPEC decisions. In a 2012 Patents County Court case (as the IPEC then was) in which a claimant sought to recover up to the £50,000 cap from each defendant, HHJ Birss QC refused the request, holding that “the terms of [the IPEC staged costs regime] were drafted with a clear intention behind them. The words are clear. The court will not order a party to pay total costs of more than the capped sum.” Indeed, HHJ Hacon had himself previously refused to lift the IPEC cost caps to accommodate an award of Part 36 indemnity costs .
So what changed? In February 2016 the Court of Appeal handed down its judgment in a case concerning the rules fixing costs in lower value personal injury claims and their interaction with the costs provisions of Part 36. Whilst the primary reasoning behind the decision was not applicable for IPEC cases (a question of interpretation of the Rules), the Court of Appeal listed a number of supporting reasons from which HHJ Hacon was able to adopt two and apply them in BPP v Hagan.
First, where fixed costs are intended to prevail under the wider scheme of Part 36, this is specified within Part 36 itself. IPEC scale costs are not referred to within Part 36, suggesting that Part 36 should prevail.
Secondly, where primary legislation is ambiguous, it is possible to refer to statements made in Parliament by Ministers or promoters of a bill. In the circumstances, the Court of Appeal referred to the Explanatory Memorandum to the Civil Procedure (Amendment No. 6) Rules 2013 which (in their interpretation) suggested that a claimant’s entitlement to indemnity costs under Part 36 should not be limited to fixed costs.
Both of these grounds were sufficient for HHJ Hacon to depart from previous IPEC decisions and award indemnity costs unconstrained by the IPEC scale costs. The safety net has effectively been lifted.
The consequences of this decision may be felt deeply.
On the one hand, the decision may encourage litigants to make Part 36 offers, promoting the early settlement of matters without the need for the court. This is clearly in the interest of all parties to a dispute and the court itself. Yet on the other hand, there appears to be a serious risk that SMEs will be dissuaded from enforcing their intellectual property rights (IP) or defending a claim in IPEC (or at all), the very forum that was intended to provide them with more reasonable access to justice than the High Court, where cost recovery is potentially unlimited. This would particularly be the case with larger well funded litigants making offers to smaller opponents.
The Part 36 regime does not readily fit with the nature of split trials for IP litigation. It can be difficult for a claimant to gauge the full extent of its financial losses (or the defendants’ profits) until the quantum stage and following Tring disclosure. Whilst the court will take into account the information available to the parties at the time when the Part 36 offer was made, there is still a concern that an offer that did not seem reasonable when made, could seem reasonable in retrospect. Further, since the primary objective in an IP claim is often the injunction to stop the infringement and other non-monetary relief, the court will need to make an assessment of whether the undertakings or order sought by the claimant in a Part 36 offer are at least as advantageous or more so than the injunction that the court actually granted. The offeror will therefore need to try and second-guess what a court would be prepared to grant by way of injunction.
It is perhaps unfortunate that the defendants in the present case are bankrupt litigants in person and unlikely to appeal. Furthermore, each case turns on its facts, and in this case, the Defendants showed a high level of disregard for the Claimant’s rights, so it is hardly surprising the Court took a firm line with them. Other cases in the future will be more finely balanced, but this precedent will be relied on nevertheless. We will therefore need to wait for the decision to be tested, but in the meantime, litigants should take some practical steps as a result of this decision.
Serious consideration should be given to making (and accepting) Part 36 offers of settlement early on in proceedings, or even before proceedings are issued, and litigants should be alive to the risk of exposure to potentially severe indemnity costs where a reasonable Part 36 offer is not accepted.