September 18, 2014

Summary

Over recent years significant reforms have affected IP litigation in the UK, promoting access to justice at proportionate cost.  As a result, there are now three distinct forums for determining IP disputes in the UK, each with a different set of procedures to enable litigants to obtain justice at a cost that is commensurate to what is at stake in a particular case.

The small claims track offers a cheap and simple procedure for handling claims worth not more than £10,000. The Intellectual Property Enterprise Court (formerly the Patents County Court) has a set of streamlined procedures to deal with claims where the damages do not exceed £500,000. The High Court can hear cases of any value and offers the full set of procedures for establishing proof, but with the flexibility to strip these back to control costs where it is proportionate to do so.

The early indications are that the reforms have been well received by users of the courts and are having a substantial impact.  Rights holders have welcomed the opportunity to enforce their rights more cheaply and in some cases more quickly, and as a result the new forums designed to handle lower value cases are busy.

Introduction

Litigating IP rights in the UK is notorious for being expensive; not as expensive as the US, but expensive by comparison to most European countries.  However, there is truth in the saying ‘you get what you pay for’.  The UK litigation system offers a full set of procedures for establishing and testing facts, including disclosure (our term for discovery) and live evidence from fact and expert witnesses tested by cross examination. The system is both rigorous and robust and the judgments are respected for this reason.

The high cost of litigation has deterred many businesses both domestic and international from resolving their disputes in the UK.  This is particularly the case for disputes of more modest value, where the cost of the litigation may exceed what is at stake.  Further, the ‘loser pays’ rule provides a double whammy for the unsuccessful litigant: first paying its own lawyer’s bill and then ordered to pay a substantial proportion of the other side’s lawyer’s bill, over which it had no control.

In a recent, headline grabbing stunt, a UK based inventor, Michael Wilcox, burnt a copy of his patent in front of the Houses of Parliament protesting that the high cost of litigation prevented him from enforcing his rights and allowed infringers to continue using his technology unabated and without paying him compensation. Another obvious example of the excessive cost of IP litigation hitting the headlines is the stories that followed in the wake of the RIM v Visto [2008] EWHC 819 (Pat) litigation in 2008 where RIM’s lawyers adopted a ‘no stone unturned’ approach and racked up costs in excess of £5million, in what the judge described as a “not very heavy” patent case.

It was against this background that, in 2008, Lord Justice Jackson (a member of the Court of Appeal and a reformist) was asked to conduct an independent review of civil litigation system and make recommendations in order to promote access to justice at proportionate cost.  His final report was published in January 2010, in which he proposed “a coherent package of interlocking reforms, designed to control costs and promote access to justice”.  Most of his recommendations were adopted and have now been brought into effect.  The reforms focus on costs, case management and funding arrangements.

Reforms to the High Court

The most recent wave of reforms came into effect in April 2013 and affect IP litigation in the High Court.  They are centred around the concept of proportionality.  This is not a new concept in the English litigation system, but it now has much greater prominence and is to be taken into consideration at all stages of a case and not just at the end in the context of a costs assessment where the winner seeks to recover their legal costs from the loser.

The concept of proportionality means that the costs of the litigation must be commensurate to what is at stake which is to be assessed by reference to the value (both in terms of monetary and non-monetary relief) of the case, its complexity and any wider factors such public interest.  The key change is that it is no longer sufficient to justify costs on the basis that it was necessary to incur them.  Just because it is necessary to incur costs, does not make them proportionate: the ends do not necessarily justify the means.

To enable courts to control costs and to provide transparency to litigants as to what their cost exposure is likely to be if they lose, a new cost budgeting regime is now applied to all IP cases in the High Court with a financial value of less than £10million.

The idea behind the cost budgeting regime is that High Court litigation in the UK should be run like any other project involving a considerable financial commitment: budgets should be produced at the outset, the project should then be managed in accordance with the budget and the amount paid at the end should bear resemblance to the budgeted cost.  The budgets are prepared by the parties but are to be approved by the court.  The court will not approve a cost budget unless it bears a reasonable resemblance to what is at stake in the litigation.  Where costs budgets are not submitted or not approved by the court, then it will be much more difficult for that party to recover its costs in the event that it wins the case.

In addition to having control over the budgets, the courts also have a host of new case management tools which allow the procedure to be tailored to the needs of a particular case to ensure that it gets to trial on budget.  These optional case management tools include:

• Expert witnesses giving oral evidence concurrently (known as ‘hot tubing’) with questioning by the judge following an agreed agenda;
• Docketing whereby cases are allocated at an early stage to a particular judge who then handles the case through to trial; and
• A ‘menu’ of several possible options for disclosure ranging from dispensing with disclosure altogether to ordering disclosure on the standard basis.

With regard to funding, the reforms have made conditional fee arrangements (i.e. no win, no fee or no win, low fee arrangements) less attractive since the success fee and premiums for after event insurance for litigation costs are no longer recoverable from the losing party.  However, damages based arrangements (i.e. contingency fees) which have proved very popular in the US have been allowed for the first time.

Reform of the Patents County Court

The Patents County Court (“PCC”) was established in 1990 to provide an alternative forum to the High Court where lower value and simpler IP cases could be litigated at lower costs.  However, in its first 20 years of operation the PCC did not achieving the desired effect. This was largely on account of the absence of any real differentiation between the PCC and the High Court in terms of procedure.

In his report Jackson LJ gave strong support for the reform of the PCC procedure which had been proposed some time earlier by court users.  These reforms were largely implemented in October 2010, including:

• The procedure has been made simpler, more paper-based and front loaded. The pleadings are fuller and include much of the evidence.  Disclosure and further evidence (in the form of witness statements, expert reports and cross-examination) is tightly controlled and will not be allowed unless it satisfies the cost benefit analysis.  In the paradigm case, a decision will be taken on the papers after the close of pleadings.
• Trials are limited to a maximum of two days.  If a case cannot be dealt with in two days, it is generally not suitable for the PCC.
• The recovery of costs by the winner is limited to a fixed amount for each phase of the proceedings and subject to an aggregate cap of £50,000 in proceedings to determine liability and £25,000 in proceedings to determine quantum.
• The court cannot award more than £500,000 in damages meaning that it is not suitable for high value cases.
• A new judge was appointed, His Honour Judge Birss QC (as he then was, now promoted to the High Court).

A second wave of reforms took effect in October/November 2013, including

• The PCC has been renamed the Intellectual Property Enterprise Court to better reflect the fact that it has jurisdiction to determine disputes relating to all types of IP.
• The announcement of a new judge, Richard Hacon (a barrister specialising in IP) to succeed the very successful HHJ Birss QC.

The Introduction of a Small Claims Track

In his cost review Jackson LJ identified an unmet need for obtaining justice in low value IP cases such as a journalist whose article has been reprinted without permission and whose claim might be valued at a few hundred pounds.  He therefore recommended the introduction of a small claims track within the PCC to deal with IP claims with a value of up to £5,000.

The small claims track became operational in October 2012.  It is competent to hear all types of IP case other than those involving (patents, registered designs and plant varieties).  Three full-time, non-IP specialist District Judges and two part-time, IP specialist Deputies have been allocated to hear cases on the small claims track.  This limited pool of judges with a mix of experience should help to promote consistency and high standards.

The procedure in the small claims track is greatly simplified and hearings are conducted in a much less formal way.  Many claims in the small claims track are pursued by litigants in person without the assistance of lawyers.  The costs that the winner can recover from the loser are typically limited to court fees and out of pocket expenses incurred travelling to and from the hearing.

In April 2013 the financial limit was increased to £10,000, meaning that a larger number of claims can now benefit from the simpler and less formal procedure.

IP litigation following the Jackson Reforms

The recent reforms have had a dramatic influence on IP litigation in the UK.  There are now effectively three different forums in which disputes about IP rights can be determined:

1. The small claims track for claims with a value of up to £10,000;
2. The Intellectual Property Enterprise Court for claims with a value of between £10,000 and £500,000; and
3. The High Court for cases that are complex and/or high value.

This choice, however, presents opportunities for forum shopping and satellite disputes about which court should hear the claim. Often the choice of forum and disputes relating to it are driven by the cost of running the litigation and the potential costs recovery that is available to the winner.

The reformed PCC has been a considerable success. The number of cases that have been started there since the reforms has increased dramatically. The streamlined procedure in the PCC makes cases inherently cheaper to run there compared to the High Court, although the front loading means that more money is spent at an early stage. Cases in the PCC have also proceeded to trial a little faster than in the High Court.

Further, the introduction of a scale costs and costs cap gives litigants visibility and assurance from the outset as to what their adverse costs liability is likely to be in the event that they lose.  This aspect has been particularly attractive to litigants who need to budget for the litigation and has encouraged many IP rights owners, in particular those of more modest means, to take steps to enforce their rights where previously it would have been uneconomical to do so.

These indications suggest that the recent reforms have brought the PCC much closer to achieving the purpose for which it was originally created; to provide cost-effective forum in which small- and medium-sized enterprises could resolve their IP disputes.

The dedicated small claims track for IP cases provides an even faster and more cost-effective forum for IP litigation. The early signs here are also encouraging with a decent number of cases being started in or moved to this court.

With the reforms to the High Court we can now expect more cases to proceed along a streamlined procedure tailored to the particular needs of the case. Although the adoption of a streamlined procedure has been available in IP cases in the High Court for several years, it has seldom been used other than in very urgent cases which have proceeded on an expedited basis. It is hoped that the heightened emphasis on proportionality and the new repertoire of case management tools will encourage judges to make orders limiting disclosure and the issues on which evidence may be adduced more often, thereby reducing the cost of resolving IP disputes. More activism from the judges along these lines is also likely to encourage the parties to focus on the important points and to narrow the issues in dispute knowing that failure to do so will risk scorn from the court.

The costs budgeting regime that has been introduced in the High Court for claims with a value of less than £10million is likely to be attractive to clients. It will provide a degree of transparency as to the parties’ likely costs exposure, and at a relatively early stage in the proceedings, in a similar way to that provided by the scale costs and cap in the PCC. Cost budgets are also likely to be useful in controlling costs post judgment since they should remove the need to undergo the laborious and expensive process of the detailed assessment of costs in many cases.

Having said all this, it remains to be seen whether the reforms will deliver what they promise in High Court litigation, at least.  Several attempts have been made in the past to control the cost of litigation in the UK, and seemingly without much success.  But the recent reforms take a different approach. They do not seek to reduce costs absolutely, but to do so only where it is appropriate in view of what is at stake in the litigation.  This means that in high value cases we are not likely to see much difference in terms of the procedure followed and the cost of litigation in the UK, but a real difference has already been seen at the lower end of the value spectrum.

Published with minor alterations in Lawyer Monthly’s IP Global Expert Guide 2014