Can legal costs be harmonised across the EU?

12 May 2016


European Union Directive 2004/48/EC ("the Directive") sets out some European Union ("EU") rules for the enforcement of intellectual property rights. Article 14 requires Member States to 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."

In practice, substantially different costs regimes apply in different Member States. Even in the UK, the regime in the High Court is very different from that applying in the Intellectual Property Enterprise Court.

In Belgium, the recovery of costs is governed by the Belgian Judicial Code ("the Code") of 10 October 1967. The general rule is that the losing party pays costs to the winning party. The costs include, in particular:

  • the expenses of witnesses and experts
  • a 'procedural costs indemnity', essentially lawyers' fees and costs.

The procedural indemnity is an amount between fixed limits laid down by Royal Decree (a decision of the Council of Ministers). The Royal Decree of 26 October 2007 lays down a set of maxima and minima graded according to the monetary value assigned to the claim. The lowest grade, for cases of value up to €250, is from a minimum of €150 to a maximum of €300. The highest grade, for cases valued at above €1,000,000 is from €15,000 to €30,000. For cases where no monetary value can be assigned to the claim, the range is from €75 to €10,000. The judge fixes an amount between the relevant limits depending, among other things, on the complexity of the case and the financial means of the losing party.

The Code also provides that the same costs regime shall apply in cases which are discontinued.

Case law in Belgium has decided that the costs of general assistance provided to a party by a technical expert (other than the costs of experts involved in the proceedings) can only be recovered where there is fault on the part of the losing party.

United Video Properties, Inc. v Telenet NV, Case C-57/15, is a reference to the Court of Justice of the European Union ("CJEU") from the Antwerp Court of Appeal. UVP started proceedings in the Commercial Court of Antwerp for infringement of patent EP 1 327 209. Telenet counterclaimed for the revocation of the patent.  In April 2012, the court found the patent invalid for lack of novelty and revoked it. The court ordered UVP to pay Telenet's costs expended in the court of first instance in a total amount €11,000, which was, in the circumstances, the maximum amount recoverable for a claim for an unspecified sum. In August 2012, UVP appealed to the Court of Appeal.

In July 2014, in proceeding in the Patents Court in London regarding the UK designation of the same European patent, but against a different defendant, the Patents Court held the UK designation to be invalid on the ground of lack of inventive step. Shortly thereafter, UVP discontinued the proceedings in Belgium. Telenet asked the Antwerp Court of Appeal for rulings that:

  • the provisions of Belgian law limiting costs to a fixed scale are contrary to Article 14 of the Directive;
  • the case law limiting the recovery of costs for technical assistance to cases where there is fault is contrary to Article 14 of the Directive;
  • UVP pay costs in the amount of €185,462.55 for lawyers' fees and €44,400 for assistance from a technical expert (a patent attorney).

The Court of Appeal referred two questions to the CJEU, being, essentially:

  1. Whether the Belgian scheme of awarding scaled flat rate costs is contrary to the requirements of Article 14 that legal costs shall be "reasonable and proportionate"?
  2. Whether the same provisions of Article 14 preclude the case law requiring fault for the recovery of the cost of obtaining technical assistance?

The CJEU sent these questions for consideration by Advocate General (AG) Campos Sánchez-Bordonas, who returned his opinion on 5 April 2016.

Submissions of the parties

The Advocate General ("AG") started by summarising the positions of Telenet, the Commission and the Belgian, Netherlands and Polish governments. UVP declined to make any observations.

Unsurprisingly, Telenet submitted that both the provisions of Belgian law were contrary to the Directive. A fixed ceiling of €11,000 was insufficient, it submitted, to satisfy the requirement for reasonableness and proportionality.

The Commission's view was that the provisions of the Directive did not preclude a system of fixed fees. The submission was largely based on its view that uncertain or disproportionate costs would be a deterrent to the holder of an intellectual property right from commencing proceedings. Certainty would make it easier for them to make up their minds. While this is, of course, true, it tends to ignore the plight of successful defendants forced to defend themselves even though they may end up substantially out of pocket.

The Netherlands and Polish governments, although neither employs a fixed scale of costs, both submitted that such a system is compatible with the Directive, pointing out, as the Commission also did, that the Directive gives the governments of Member States a wide discretion as to how to implement it. The Netherlands government also pointed out that even if a fixed system is employed, it must give a result that is reasonable and proportionate in the circumstances of the case.

On the second question, both the Commission and the Netherlands government took the view that technical experts' costs, so long as they were reasonable and proportionate and expended in pursuit of the proceedings, must be recoverable regardless of fault.

Opinion of the Advocate General

The first question

It is possible to detect in the AG's observations a tension between the discretion which he considers the Directive gives to Member States to implement it as they see fit, and the basic function of the Directive, which is to harmonise the legislation of the Member States. He states:

". . . the objective of the Directive is to approximate the legislation of the Member States so as to ensure a high, equivalent and homogeneous level of protection in the internal market. In line with that aim, the Member States must provide for the measures, procedures and remedies necessary to ensure the enforcement of intellectual property rights, but they must do so within the legislative framework defined by the Directive itself."

He emphasises from the outset the requirements of the Directive that the costs be reasonable, which he interprets as meaning that the work for which the lawyer was paid was reasonable to carry out in the circumstances of the case, and proportionate, which involves issues such as the complexity of the case, the sums in issue and the financial means of the paying party.

He then deals with the question of whether a system which sets a maximum for the costs recoverable is, in principle, in accordance with the Directive. He points out that none of the observations to the Court submits that there is an in principle objection and agrees with this view.

The AG goes on to address the question of whether the Belgian system is in accordance with the Directive. He dismisses the obvious disparity between the amount which the Belgian courts have awarded and the amounts which Telenet claim by saying that it is for the referring court to assess whether the fees are reasonable and proportionate. He is clearly not of the view that the CJEU should enquire into the reasonableness of the individual amounts in this case, even though it could be argued that if the Belgian system produces an unreasonable result in a particular case, that is a clear pointer that the system does not meet the requirements of the Directive.

He points out that the Royal Decree of 2007, which sets out the levels of minimum and maximum fees recoverable, was passed with the approval of the bar associations and "Those organisations are well placed to suggest the standards of 'objective reasonableness' above which, in Belgium, no one should be required to pay the opposing party's lawyer's fees."

On the first question the AG concludes that a system, such as the Belgian system, which sets a maximum recovery, is in accordance with the Directive.

The second question

The AG's opinion on the second question is largely concerned with the question of what type of expert's fees are the subject of the limitation, established by case law that they are only recoverable on proof of fault. If the costs which are not recoverable cannot be classified as 'legal costs' because, for example, they are only preliminary enquiries, then the Belgian case law does not conflict with the Directive.

His conclusion on the second question is that the Directive does preclude a requirement for there to be fault if ". . . those costs are directly and immediately connected to the pursuit of proceedings".

Conclusion

The CJEU could surprise us. The principle of a fixed scale of costs has its attractions and the Court would be reluctant to conclude that such a system is precluded by the Directive.

However, the sum of €11,000 appears unreasonable and disproportionate to compensate Telenet for the actual cost of defending itself from accusations of infringing a patent that is invalid. One of the difficulties of the Belgian system so far as patent litigation is concerned is that such a claim is assessed as a claim to which no monetary value is assigned, and this gives rise to very low costs assessments. This is a part of the Belgian system as a whole.

If the CJEU agrees with this view, it could decide that a fixed costs system is acceptable in principle, but only if the fixed amounts are reasonable and proportionate, and that the Belgian limits are not. That would be a logical conclusion if the objective of the Directive is truly to harmonise the legislative provisions of the Member States.

However, the CJEU will, one suspects, be very reluctant to involve itself in an assessment of the reasonableness of the costs recovered in an individual case or in how the legislation in a particular jurisdiction satisfies the requirement that the results are reasonable and proportionate, or even to set out any objective, EU-wide, principles on which the standards for reasonableness and proportionality are to be judged.

Given the disparity between the costs recoverable in different jurisdictions of the Member States, any decision by the CJEU which raises questions about how costs are calculated could open a can of worms.


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