CJEU: "Flat-rate" reimbursement for legal fees must cover a significant part of the costs incurred by the successful party

On 28 July 2016, the CJEU issued its decision in the preliminary referral Case C-57/15 United Video Properties. At issue was whether a provision of the Belgium Judicial Code that provides only for a flat-rate reimbursement of legal costs to the successful party was compatible with the Enforcement Directive, namely Article 14 Enforcement Directive, which reads under the heading "Legal costs":

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 CJEU held that while Article 14 Enforcement Directive did not prohibit flat-rate reimbursement of legal costs per se, it set limits on how Member States could set the flat-rate. Namely, the costs to be reimbursed by the unsuccessful party must be "proportionate", which means that they must cover "at the very least, a significant and appropriate part of the reasonable costs actually incurred by the successful party". In other words, the ceilings provided by a flat-rate reimbursement tariff must not be so low as to cover only an insignificant part of the actual costs of representation of the successful party. The CJEU reasoned that the dissuasive effect of an action for infringement would be seriously diminished if the infringer could be ordered only to reimburse a small part of the reasonable lawyer’s fees incurred by the injured rightholder, which would be contrary to the Enforcement Directive's principal aim of ensuring a high level of protection of intellectual property rights in the internal market. Of course, the rule not only applies to the right holder - the successful defendant also profits (Merpel notes that a costly "loser pays" rule may also prevent patent trolling).

 

The CJEU was further asked whether a provision that the costs for a technical expert retained by a party only be reimbursed if the unsuccessful party was at fault was compatible with the Enforcement Directive. Here, the Court held that insofar the costs for the expert was "other expenses" in the sense of Article 14 Enforcement Directive, reimbursement could not be conditioned on fault. "Other expenses" in the sense of Article 14 Enforcement Directive are such costs that are directly and closely linked to the litigation. That is not the case for costs associated with market observation and infringement detection, but any technical expertise required for a successful action is closely linked to the litigation.


The case is interesting because the Preparatory Committee for the Unified Patent Court has suggested the adoption of ceilings on recoverable costs (see table below) that, at least for lower values in dispute, may not cover a significant part of the actual litigation expenses of the successful party (they may be raised by up to 50% for values in dispute below EUR 1 million, and up to 2% for values in dispute above EUR 1 million) and must in principle also cover "other expenses" linked to the litigation, such as expert fees. Now, whether and when the UPC will ever become a reality is anybody's guess - should you feel the urge to organize a conference on the topic, draw a number and get in line, please.


Proposed recoverable costs ceilings for UPC litigation (per instance)