The Court of Justice of the European Union (CJEU) has issued an important ruling for the recoverability of legal costs in intellectual property litigation.
Following a referral from the Court of Appeal in Antwerp, Belgium, the CJEU considered what is meant by “reasonable and proportionate legal costs and other expenses", which "shall, as a general rule, be borne by the unsuccessful party" pursuant to Article 14 of the Directive 2004/48/EC on the enforcement of intellectual property rights (the "Enforcement Directive").
The ruling raises questions as to how the many and varied national regimes for the recoverability (or not) of legal costs arising in IP litigation will in fact be considered to "approximate [the legislative systems of the Member States] so as to ensure a high, equivalent and homogeneous level of protection in the internal market" - the stated objective of the Enforcement Directive.
Background to the referral
United Video Properties ("UVP") sued Telenet in Belgium for patent infringement but was unsuccessful at first instance and ultimately withdrew its appeal.
Telenet sought reimbursement of €185,462.55 in respect of lawyers' fees and €44,400 in respect of the assistance provided by an agent specialized in the field of patents.
The Commercial Court ordered UVP to pay to Telenet, in respect of its legal costs, €11,000. Pursuant to the Belgian Judicial Code of 10 October 1967 ("the Judicial Code") and fixed limits laid down by Royal Decree according to the monetary value assigned to the claim, the maximum permitted reimbursement in respect of each instance of proceedings was €11,000.
Also in accordance with Belgian legislation (which required fault in order for such costs to be recoverable), no reimbursement was ordered in respect of the agent specialized in the field of patents.
Telenet complained that the Belgian legislation did not comply with Article 14 of the Enforcement Directive and a reference was made to the CJEU.
Article 14 of the Enforcement Directive
Article 14 of the Enforcement Directive provides as follows:
"Member States shall 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."
The Advocate General's opinion
Advocate General (AG) Campos Sánchez-Bordonas returned his opinion on 5 April 2016. In his view, a system, such as the Belgian system, which sets a maximum recovery, was in accordance with the Directive. However, a requirement that there must be fault in order for costs directly and immediately concerned with the pursuit of proceedings to be recoverable was, in the AG's opinion, precluded.
Our commentary on the AG's opinion and the issues raised is available here.
The CJEU's ruling
The CJEU confirmed that the term "legal costs" in Article 14 of the Enforcement Directive includes, among others, lawyers' fees. But the CJEU explained that this article only requires Member States to ensure the reimbursement of "reasonable" legal costs. In accordance with Article 3(1) of the same Directive, the procedures laid down by the Member States must not be unnecessarily costly.
Legislation providing for a flat-rate reimbursement of legal costs could, in principle, be justified, provided that it is intended to ensure the reasonableness of the costs to be reimbursed, taking into account factors such as the subject matter of the proceedings, the sum involved, or the work to be carried out to represent the client concerned.
However, the requirement that the unsuccessful party must bear "reasonable" legal costs cannot justify legislation imposing a flat-rate significantly below the average rate actually charged for the services of a lawyer in IP litigation in that Member State. In the opinion of the CJEU, such a regulation would be disparate with Article 3(2) of the Enforcement Directive, which requires the procedures and remedies provided to be "dissuasive".
Nevertheless, the legal costs to be supported by the unsuccessful party must be "proportionate". This could not be assessed independently of the costs that the successful party actually incurred in respect of the assistance of a lawyer, provided they are reasonable. The successful party should have the right to reimbursement of, at the very least, a significant and appropriate part of the reasonable costs that they have actually incurred.
Therefore, the CJEU concluded that national legislation which lays down an absolute limit in respect of costs attached to the assistance of a lawyer must ensure, on the one hand, that this limit reflects the reality of the rates charged for the services of a lawyer in the field of intellectual property, and, on the other, that, at the very least, a significant and appropriate part of the reasonable costs actually incurred by the successful party are borne by the unsuccessful party.
Further, the CJEU confirmed that the term "other expenses" in Article 14 includes, in principle, costs incurred for the services of a technical adviser, provided they are directly and closely related to the judicial proceedings concerned. But where costs fall within this term, recoverability is not permitted to depend upon a party being at fault. The costs of the services of a technical adviser, which are essential in order for the claimant to be able to bring a useful claim to defend its IP-rights in a specific case, would be "directly and closely" related to the judicial proceedings concerned. On the other hand, the costs of research and general market observation, in order to identify possible infringements, would not appear to show the necessary close and direct link.
The CJEU's judgment provided some surprisingly clear guidelines for the assessment of whether the principles of reasonableness and proportionality are met.
Absolute limits in respect of legal fees must ensure, on the one hand, that those limits reflect the reality of the rates actually charged for the services of a lawyer in the field of intellectual property in the Member State concerned, and, on the other hand, that, at the very least, a significant and appropriate part of the reasonable costs actually incurred by the successful party are borne by the unsuccessful party.
It remains to be clarified what is meant by "a significant and appropriate part" of the reasonable costs, or what proportion of the value of a claim or dispute would amount to "reasonable".
Further guidance is to be expected in due course. The decision of the CJEU in UVP v Telenet, case C-57/15, is available here.