14 July 2011

The Effect of the Legal Aid, Sentencing and Punishment of Offenders Bill on Intellectual Property Litigation

We have an adversarial system of civil litigation in England and Wales as do most other English speaking countries. In an adversarial system the parties choose the issues over which they wish to fight and produce the evidence that they want the tribunal to consider. By contrast, most of the rest of the world has an inquisitorial system where the tribunal leads an inquiry into the facts.

Each system has its advantages and it is beyond the scope of this article to decide which is superior but one advantage of the inquisitorial system is that it is very much cheaper. In the New Patent County Court Rules, Why IP Yorkshire and many other articles as well as in my book Enforcing Intellectual Property Rights I referred to the IPAC report The Enforcement of Patent Rights that compared the costs of patent infringement litigation in France, Germany and the Netherlands in 2003 (between 10,000 and 50,000 euro) with the costs in England and Wales (£150,000 to £250,000 in the Patents County Court and over £1 million in the Patents Court) and the United States of America ($2 to $4 million and upwards).

This disparity in the cost of civil litigation mattered very much less when we had comprehensive legal aid that often extended to intellectual property litigation. Although I never had much publicly funded work I did have some cases where taxpayers' money enabled private inventors and talented fashion designers to hold massive manufacturing companies and retail chains to account. Legal aid for inventors, artists and entrepreneurs ceased when paragraph 1 (h) of Schedule 2 to the so called Access to Justice Act 1999 came into force in April 2000.

That Act had the effect of reserving chancery and commercial litigation for the super rich. That was possibly not the intention. In its white paper Modernising Justice (Cm 4155) Dec 1998 the government of the day envisaged that conditional fee agreements ("CFA") and after-the-event ("ATE") insurance would ensure access to the courts for the less well off. In some areas of civil litigation, such as personal injuries and defamation, that actually happened. But it did not happen to any significant extent in intellectual property and most other chancery litigation for the simple reason that it was just not economic for specialist counsel and solicitors to accept instructions for complex cases that could last for years on a speculative basis.

The other point that I made in the book and articles that I mention above is that the UK trails its competitors in the number of patent applications. In Why IP Yorkshire I compared the number of European patent applications from the UK and other leading industrial countries between 2002 and 2007 in a table that showed that we were a long way behind not just the USA and Japan in our own patent office (perhaps unsurprising in view of the size of those economies) and our neighbours France and Germany of similar size and GDP but also the Netherlands with one third of our population and Switzerland with one eighth. In the New Patents County Court Rules I produced the 2009 statistics which showed that that trend had continued. Anyone who wants to see what happened last year has only to consult the European patents and patent applications - 2010 statistics.

I believe that there is a correlation between the cost of enforcement and the number of patent applications and I have lots of anecdotal evidence gained from my IP Clinics and inventors clubs to back up that assertion. Those who take a contrary view point to the USA where the costs of litigation are at least as high as in England but which still tops the list of European patent applications. My answer to that point is that the American justice system is still more inventor friendly than the English. Costs do not usually follow the event and counsel can contract for a share of the damages which are often awarded by a jury and tend to be very much larger than those awarded here. I know of at least one British inventor, John Mitchell of the SME Innovation Alliance, who has pursued his rights in the USA for that very reason.

Now I am delighted to say that at least some of the provisions of the Access to Justice Act 1999 are about to be repealed. Alas, not the restoration of legal aid for the areas of civil litigation that fell within Schedule 2 to that statute. The Legal Aid, Sentencing and Punishment of Offenders Bill actually restricts public funding in some respects by making civil legal services available only if they fall within Part ! of Schedule 1 to the proposed legislation or if they are "exceptional cases" within the meaning of clause 9 of the Bill. However, the Bill does implement several of Sir Rupert Jackson's recommendations from his Review of Civil Litigation Costs. Clause 41 (4) will relieve unsuccessful defendants from paying success fees in CFA. Clause 43 (1) will prevent recovery of ATE insurance premiums. Clause 42 will extend the range of circumstances in which lawyers may contract for a share of the damages. Clause 51 should encourage early settlement.

The Bar Council has expressed concern over this Bill (see the Bar Council's press release of 28 July 2011 "Parliament should heed experts' warnings on legal aid changes") and is lobbying hard for amendments to it but so far as intellectual property litigation is concerned I am not so sure that it is a bad thing. When taken together with the cap on costs and the other procedural changes in the Patents County Court that I discussed in my article of 31 Oct 2010 clause 41, 42, 43 and 51 should reduce the risk and costs of intellectual property enforcement. CFA and ATE insurance will be a great deal less attractive to litigants if success fees and premiums are irrecoverable. There will be greater incentive for patentees and other intellectual property owners to take out intellectual property insurance when they obtain their grants (see my article "IP Insurance Five Years On" The Inventors Club 23 Oct 2010). They are also likely to consider alternative methods of dispute resolution such as examiners' opinions on validity and infringement, the Uniform Domain Name Dispute Resolution Policy and Nominet equivalent for domain name disputes, mediation by WIPO, Intellectual Property Office and indeed these chambers or arbitration by WIPO and NIPC.

I discussed many of those possibilities in my presentation to the IPO's intellectual property awareness day and accompanying handout last September. We can provide comprehensive, reliable and cost-effective advice and representation for all those options. We can represent parties to arbitrations, mediation and domain name disputes and if all else fails applications for injunctions. For further information call us on 0800 862 0055 or fill in our contact form.

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