31 October 2010

New Patents County Court Rules

New From 1 Oct 2012 there will be a new small claims track in the Patents County Court, a reform recommended by Hargreaves, Jackson and Gowers. I have written written about the rules governing actions in this new jurisdiction in Patents County Court - the New Small Claims Track Rules 20 Sept 2012.


Possible Correlation between the Cost of Enforcement and the Number of British Patent Applications
In November 2003 the Intellectual Property Advisory Committee published the report The Enforcement of Patent Rights. On page 50 of the report the Committee compared the cost of patent infringement litigation in the UK, USA, France, Germany and the Netherlands. It found that the costs in Patents Court were around £1 million. Even in the Patents County Court (“PCC”) they were between £150,000 and £250,000. By contrast, the costs in France were between €30,000 and €50,000, those in Germany between €25,000 and €50,000 depending on scale, and those in the Netherlands €10,000 to €20,000 for summary proceedings and €40,000 for a simple action. Only in the USA were litigation costs comparable to ours but in that country lawyers’ fees are not usually recoverable from the losing party, liability and pecuniary relief are decided at the same hearing, at least some intellectual property practitioners will accept instructions on contingency fee retainers and it is arguable that US substantive law is more favourable to patentees than ours.
I have often argued that it is no coincidence that the UK trails its continental neighbours in the number of European patent applications (see, for example, “Why IP Yorkshire” in my IP Yorkshire blog 10 Sep 2008). My argument in that article was based on the applications for the 6 years between 2002 and 2007 so I checked the 2009 statistics. I’m sorry to say that there has been no change.
State
Number of European Patent Applications
USA
32,966
Germany
25,107
Japan
19,903
France
8,929
Netherlands
6,738
Switzerland
5,865
UK
4,821
Source EPO Annual Report 2009
If my experience is anything to go by, word has got round that it is not worth applying for patents because the cost of enforcement is prohibitive. Indeed, inventors have been told just that by Graham Barker, co-author of A Better Mousetrap, in “Patenting your Invention, the Ugly Truth”.
Costs Limitations in the PCC
However, all this may change as new rules have been introduced with effect from 1 October 2010 that cap the costs that can usually be recovered in intellectual property litigation in the PCC to just a little bit more than the €50,000 limit that IPAC found in Germany. CPR 45.42 provides that unless a party has behaved unreasonably the maximum costs that can be awarded against him are:
(a) £50,000 on the final determination of a claim in relation to liability; and
(b) £25,000 on an inquiry as to damages or an account of profits.
Like proceedings in the Intellectual Property Office, costs in the PCC will be tied to a scale. CPR 45.42 (3) fixes the costs that may be awarded for each state of the litigation to a scale in The Costs Practice Direction. Paragraph 25C.1 of that Practice Direction sets them out in the following tables:
Determination of Liability
Stage of a claim
Maximum amount of costs
Particulars of claim
£6,125
Defence and counterclaim
£6,125
Reply and defence to counterclaim
£6,125
Reply to defence to counterclaim
£3,000
Attendance at a case management conference
£2,500
Making or responding to an application
£2,500
Providing or inspecting disclosure or product/process description
£5,000
Performing or inspecting experiments
£2,500
Preparing witness statements
£5,000
Preparing experts’ report
£7,500
Preparing for and attending trial and judgment
£15,000
Preparing for determination on the papers
£5,000
Inquiry as to Damages or Account of Profits
Stage of a claim
Maximum amount of costs
Points of claim
£2,500
Points of defence
£2,500
Attendance at a case management conference
£2,500
Making or responding to an application
£2,500
Providing or inspecting disclosure
£2,500
Preparing witness statements
£5,000
Preparing experts’ report
£5,000
Preparing for and attending trial and judgment
£7,500
Preparing for determination on the papers
£2,500
Off the Scale Costs Awards
Costs over and above the scale and overall limit can still be awarded where
  • the court considers that a party has behaved in a manner which amounts to an abuse of the court’s process (CPR 45.41 (2) (a)),
  • the claim concerns the infringement or revocation of a patent or registered design the validity of which has been certified by a court in earlier proceedings (CPR 45.42 (b)), or
  • where a party has behaved unreasonably (CPR 63.26 (2)).
There is bound to be a lot of argument, especially in the early cases, as to what amounts to “unreasonable behaviour”. My own view for what it is worth is that the court will apply CPR 63.26 (2) sparingly. The whole point of the rule change was to enable the PCC to perform its original function of “providing an affordable forum for intellectual property litigation.” As the Intellectual Property Court Users Committee noted in the Working Group’s Final Report on Proposals for Reform of the Patents County Court which was published on 31 July 2009:
“The PCC has not succeeded in providing [an affordable forum for intellectual property litigation], however. There are two main reasons for this. The first is the fear of having to meet a substantial, and unpredictable, adverse costs award if unsuccessful. The second is that the procedure of the PCC is itself costly, because it is identical to that of the High Court. Changes both to the costs regime and to the procedure of the PCC are therefore needed.”
The object would be defeated if the PCC were regularly to award costs off the scale. Moreover, the Working Group upon whose final report these rule changes are based used the adjective exceptional in referring to the cases where the power to award off-the-scale costs might be used (see page 15 of the Final Report). They suggested conduct that amounts to an abuse of the process of the court as an example. In other words, cases in which indemnity costs would be awarded.
Having said that, the Working Group had in mind the practice of the Intellectual Property Office tribunals when it made its recommendations. The criteria for awarding off-the-scale costs in those tribunals are more relaxed. In paragraph 9 of Tribunal Practice Note 2/2000 the then Comptroller, Alison Brimelow, remarked:
“It would be impossible to indicate all of the circumstances in which a Hearing Officer could or should depart from the scale of costs; indeed it would be wrong to attempt to fetter his or her discretion is such a way. The overriding factor is to act judicially in all the facts of a case. That said, it is possible to conceive of examples. A party seeking an amendment to its statement of case which, if granted, would cause the other side to have to amend its statement or would lead to the filing of further evidence, might expect to incur a costs penalty if the amendment had clearly been avoidable. In another example, the costs associated with evidence filed in respect of grounds which are in the event not pursued at the main or substantive hearing might lead to award which departs from the scale. Costs may also be affected if a losing party unreasonably rejected efforts to settle a dispute before an action was launched or a hearing held, or unreasonably declined the opportunity of an appropriate form of Alternative Dispute Resolution (ADR). A party’s unnotified failure to attend a hearing would also be a relevant factor.”
However, in reading this paragraph, it has to be born in mind that the scale costs in the Intellectual Property Office tribunals are a fraction of those that can still be awarded in the PCC.
Other worries that remain for the private inventor or small businessman or woman are that he or she can still be mulcted in costs under CPR 36.14 (3) if he or she fails to beat an offer of settlement and there are no restrictions on the costs that can be awarded against him or her in the Court of Appeal.
Implementation of these Costs Rules
There has already been one case in which the His Honour Judge Birrs QC, the new PCC judge, has held that these costs rules do not apply to cases already pending in the Patents County Court before 1 October 2010. Although the issue had not been argued because both parties agreed that that was the case, the judge set out his reasons between in paragraph [7] of his judgment in Technical Fibre Products Ltd and Another v Bell and Others [2010] EWPCC 011 (20 Oct 2010):
“In brief, my reasons are as follows:
i) Although there are no express transitional provisions forming part of the new rules, nothing in the provisions bringing the new rules into effect states expressly that they should apply to existing cases and if so how.
ii) The new Patents County Court procedures are intended to be radically different from the familiar rules of procedure under the CPR. The rules address statements of case, statements of truth, case management, conduct of trials, costs and other matters. The new procedures consist of a package of measures which interact with each other and were intended to operate as such. To best achieve that objective the rules need to be applied as a whole. The rules cannot be applied as a whole to an existing case. The position of a case started in the High Court and transferred into the Patents County Court after the new rules have come into force is not before me and may raise different considerations.
iii) Litigation which had been started in the Patents County Court before the 1st October 2010 was commenced under a regime in which costs were dealt with in the familiar way. There is a general presumption against retrospective legislation (16(1) of the Interpretation Act 1978) which applies to subordinate legislation as much as to primary legislation (Nicholls v Greenwich [2003] EWCA Civ 416).”
He added at paragraph [8] that strange results would ensue of the new rules did apply to existing cases in the PCC because the new provisions on costs in CPR Pt 45.41 – 45.43 provide for a ceiling on the overall costs of a case subject to the exceptions mentioned above.
“To impose the costs ceiling on costs incurred by parties in litigation when, at the time they were incurred, the ceiling did not apply seems to me to be potentially unfair, retrospective and likely to lead to injustice. One could conceive of an argument for saying that the costs rules could apply to all costs incurred after 1st October 2010 in all cases in the Patents County Court list as at that date but the risk of injustice in that course seems to me to remain. Although the table of scale costs includes a breakdown for different steps and stages of a claim (section 25C of the Costs Practice Direction (CPR Pt 45)), the scale system operates as a limit on the total costs at the determination of the claim (CPR Pt 45.42(1)). If the costs incurred prior to 1st October 2010 and assessed in the normal way produce a figure above the ceiling (£50,000) where does that leave the ceiling?”
Attitude of Insurers
Since much of the litigation will be funded by intellectual property insurance I had a word with two of my contacts in that industry through Linkedin. Both of those contacts are specialist brokers. I got the impression that they had been unaware of the rule changes until I drew the changes to their attention. One responded very quickly:
“Jane,
I think the solution here is very simple - premiums can be kept to a minimum by buying low limits of £50k-£75k to reflect this cap.”
The other is consulting his underwriters having regard, no doubt, to some of the uncertainties mentioned above.
Other Rule Changes
I should add that whole new sections have been added to CPR Part 63 and the Part 63 Practice Direction with effect from 1 Oct 2010 and the following provisions seem to me to be especially noteworthy.
  • CPR 63.20 requires the particulars of claim to state whether the claimant has complied with paragraph 7.1(1) and Annex A (paragraph 2) of the Practice Direction (Pre-Action Conduct).
  • CPR 63.21 stipulates that the statement of truth must be signed by a person with knowledge of the facts alleged, or if no one person has knowledge of all the facts, by persons who between them have knowledge of all the facts alleged.
  • The first case management conference will become even more important than it was previously because it will be the occasion on which the court will identify the issues and decide whether to make an order in accordance with paragraph 29.1 of Practice Direction. Those orders include (1) specific disclosure; (2) a product or process description (or a supplementary product or process description where one has already been provided); (3) experiments; (4) witness statements; (5) experts’ reports; (6) cross examination at trial; and (7) written submissions or skeleton arguments. Paragraph 29.2 of PD63 makes clear that the court will make an order under paragraph 29.1 only in relation to specific and identified issues and if the court is satisfied that the benefit of the further material in terms of its value in resolving those issues appears likely to justify the cost of producing and dealing with it. CPR 63.23 (2) adds that the court will consider an application by a party to submit additional material only in exceptional circumstances. Finally, the court may determine the claim on the papers if all parties consent.
  • CPR 63.25 (3) requires the court to deal with applications without a hearing unless it considers it necessary to hold a hearing. Where it does hold a hearing, paragraph 63.25 of the Practice Direction requires the court to conduct the hearing by telephone or video link unless a hearing in person would be more cost-effective for the parties or otherwise in the interests of justice.
  • Paragraph 31.1 of the Practice Direction requires the court to determine the claim solely on the basis of the parties’ statements of case and oral submissions wherever possible. It will set the timetable for the trial and will, so far as appropriate, allocate equal time to the parties. Cross-examination will be strictly controlled by the court. The court will endeavour to ensure that the trial lasts no more than 2 days.

Conclusion
The new rules are certainly better than nothing but are they enough to induce my little chaps in places like Heckmondwyke and Rawtenstall to apply for patents for their inventions or, indeed, to carry on inventing? I certainly hope so but I still have doubts.

First, £75,000 or even £50,000 is way too high for those businesses and inventors that I represent even if one can disregard the risk of off-the-scale awards for appeals and Part 36 offers. I do not share Graham Barker or many patent agents’ scepticism about patent insurance (see my article “IP Insurance Five Years On” in my Inventors Club blog of 23 Oct 2010) but premiums are still too high for many of my clients. That is why I argued in my submission to the Working Group that the PCC should be abolished and its functions transferred to the Intellectual Property Office Tribunals which should themselves be reformed (see "Costs: Why not abolish the Patents County Court" 10 Jan 2010). But that is unlikely to happen unless these reforms fail.

My second area of concern is that these new rules do not address Sir Rupert Jackson’s recommendation of a forum for very small intellectual property claims and it is that sort of dispute that occurs most frequently in practice. It is to address that problem that I launched my own IP arbitration and mediation schemes in the summer. Disputes such as those that I listed on the home page of http://www.nipcarb.co.uk/ would be referred to arbitrators who know what they are doing and costs will be awarded on the Intellectual Property Office tribunal scales.

If we are to get out of our economic downturn it will be through the efforts of little chaps in Heckmondwyke and Rawtenstall (and for that matter Belfast, Berwick and Birmingham, Padstow and Portmadoc, Wick and Winchester and no doubt Mornington Crescent) who will do it. If we don’t look after them we’re finished as an innovative economy. And they need some effective means of protecting their investment in branding, design, technology and creative works.

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