On 1 January 2024, a cap on recoverable costs was introduced for patent and registered design disputes heard in the Patents Court under the Shorter Trials Scheme (STS) procedure.
The change, following a proposal made by the Intellectual Property Lawyers' Association (IPLA) (based on a suggestion made by IPLA member, Gowling WLG), will likely be welcomed by small and medium-sized enterprises (SMEs). In particular, it offers reassurance for intellectual property (IP) right owners concerned about the potential costs exposure involved in seeking to enforce their rights through court proceedings. Here, we discuss what will differ under the new STS costs cap and how the change will sit within the framework of our current systems for handling patent and registered design disputes in the UK.
Certainty as to potential costs exposure in High Court litigation is not a new concept - costs caps (now set at £60,000) have existed for cases in the Intellectual Property Enterprise Court (IPEC) for some time. However, in contrast to proceedings heard in the IPEC, the STS cap is set at a much more generous level and there is no corresponding cap on the recovery of damages.
As a result of this welcome change, the UK now boasts a specialist forum for resolving patent and registered design disputes that is staffed by specialist judges, delivers a trial within 12 months, has no procedural limit on the relief it can award (financial, injunctive and declaratory) and provides certainty of cost at a price point that is competitive with other jurisdictions for similar cases.
For more detail on how this sits within the different schemes available in the UK, and the cases that will be suited to this forum, please read on below.
Patent and registered design litigation in England and Wales – financial remedies and costs recovery
Patent and registered design disputes can be heard in the High Court of England and Wales' Patents Court or IPEC. In the Patents Court there is a choice between the multitrack and the STS procedures. Before 1 January 2024, there was no difference in costs recovery between the two Patents Court procedural routes. That has now changed.
In English litigation, the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party. Therefore, a patent owner that is unsuccessful in establishing their claim for infringement (or in defending a challenge made to the validity of their patent) may be ordered to pay the costs of the defendant alleged to infringe.
In deciding what order (if any) to make about costs, the court will have regard to all the circumstances of the case, including the conduct of the parties. Costs may be assessed on the standard basis or the indemnity basis. Neither permits the recoverability of costs which have been unreasonably incurred or which are unreasonable in amount, but costs on the standard basis must be proportionate, with any doubt resolved in favour of the paying party. The amount of any costs awarded, therefore, also depends upon the circumstances of the case. However, there are different rules governing the recovery of costs in different courts.
In High Court multitrack litigation (including in the Patents Court), there is no cap on either damages or the costs that a successful party is able to recover from an unsuccessful party. Usually, for cases valued below £10 million, a costs budgeting procedure provides the parties with some visibility of their likely costs exposure if they do not succeed (and will place some limit on recovery), but there is no cap as such on costs recovery.
At the other end of the scale, in the IPEC, procedural rules provide for a cap on both the recoverable financial relief and recoverable costs (subject to rarely invoked exceptions). The cap on financial relief for infringement is £500,000. The cap on recoverable costs is currently set at £60,000 for the liability stage (having increased from £50,000 in October 2022) and £30,000 for the quantum stage (having increased from £25,000). The certainty offered to litigants, in terms of worst-case costs exposure, has contributed to the success of the IPEC as a forum of choice for litigants seeking an efficient dispute resolution forum, particularly for brands and designs cases. However, there have been comparatively few patent cases brought in the IPEC due to the complexity and value typically involved in such disputes.
Demand for mid-tier patent litigation
The limitations of patent actions in the IPEC and the risks (for SMEs in particular) of engaging in litigation in the Patents Court created a 'gap' in the system, as identified by Gowling WLG in its comments to the Civil Justice Council:
"We believe that there is similar pent-up demand in the middle tier of potential litigants – which might be tempted by the prospect of a ceiling of liability in the event of defeat, those for whom the £[60,000] is too low but for whom the prospect of potential liability for fees running to millions is simply too much of a risk to take in terms of the long-term viability of their businesses. There is significant anecdotal evidence, and some empirical evidence, of companies with potential patent infringement actions under consideration defined by their own legal costs, over which they have a degree of control and a limit of no more than £500,000 to the other side."
The STS costs cap in patent cases
The result is a new Practice Direction, PD51ZD, that came into force on 1 January 2024, initially to run until 31 December 2026.
As has been the case for a number of years now, STS procedure (PD57AB) remains available in the Patents Court, with all the benefits entailed – trial within 12 months, a specialist judge, the court endeavouring to deliver its judgment within six weeks of trial, and financial relief calculated on the usual common law principles without any cap on the award the court may make.
How does the cap work?
PD51ZD supplements the general STS procedure in the Patents Court by providing that the following caps apply on recoverable costs:
- £500,000 on the final determination of a claim in relation to liability; and
- £250,000 in an inquiry as to damages or an account for profits.
To benefit from the cap, a claimant needs to state on the Claim Form that the claim has been started in the STS. If the defendant considers the case to be too complex or otherwise unsuitable for the STS, it may apply to transfer the claim out of the STS.
Why is the cap set at £500,000?
The rationale for the £500,000 limit on recoverable costs for the liability stage of a patent dispute, according to the IPLA, is that it is consistent with the level of costs awards that tend to be made in patent cases in the current STS framework. It also reflects the cap on recoverable costs for similarly sized cases in the newly opened Unified Patents Court.
Why is the STS suitable for patent disputes?
The STS provides a useful procedural option, among several different options, for litigants seeking to resolve a patent or registered design dispute in the courts of England and Wales. It accommodates, within a reliably speedy time period, a more complex procedure than is permitted in the IPEC (for example by allowing a four-day rather than a two-day trial) and un-capped levels of financial relief. The costs cap now provides certainty on worst-case costs exposure (for the other side's costs) should litigants ultimately be unsuccessful in litigation.
Who will use the STS now it has a costs cap?
The changes should solidify the STS as the go-to forum for mid-tier patent and registered design cases, with smaller cases still going to the IPEC. The intention is that, in addition to attracting SMEs and mid-tier patent cases, the changes will make the UK Patents Court a more attractive venue for resolving patent and registered design disputes. If successful, the same principles may be rolled out across a wider range of IP cases; we see it as likely to be particularly useful for trademark cases.
For more information on any of the points raised in this article, please get in touch with Michael Carter or John Coldham in our Intellectual Property team.