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7 January 2016TrademarksPatrick Cantrill

IPEC: when the cap fits

Rights without effective remedies are of no real value, so it is heartening to see how the Intellectual Property Enterprise Court (IPEC) has developed as a far more suitable forum than the English High Court for individuals and small-to-medium enterprises, with the IPEC now handling roughly three times as many cases than in 2010.

In intellectual property disputes the primary remedy sought is an injunction to restrain the disputed acts, and the IPEC has shown adeptness in efficiently tackling relatively straightforward disputes. Central to the IPEC’s strategy are the limits on the costs that can be awarded against losing parties as well as the maximum limit of £500,000 ($736, 497) in damages that can be awarded by the court. These limits, coupled with the fact that all costs before the IPEC are assessed summarily and that the trials last no more than two days, promise faster justice and greater certainty for litigants, which will be encouraged to enforce their rights.

The limits are also intended to keep parties focused on the resolution of disputes at the earliest opportunity and continuously monitor the cost/benefit ratio of litigation. At the conclusion of the trademark dispute NOCN v Open College Network in September 2015, Judge Hacon observed that the combined costs of the parties stood at £400,000, ie, eight times the maximum recoverable total costs of £50,000 and that, especially as they were both charities, they should have more actively explored a settlement.

The IPEC continues to demonstrate that it sticks to its key tenets and will narrowly interpret any exceptions to the limits on costs and damages. Some commentators have voiced concerns that this restrictive approach may result in harsh and unfair consequences.  However, without strict adherence to the caps, the raison d’être of the IPEC and the basis for its success are in danger of being lost. In any case, it is the choice of claimants whether they commence proceedings in the IPEC and there are subsequent (albeit rarely used) mechanisms for transferring cases from the IPEC to the English High Court.

Capping costs

In Kemal Akhtar v Bhopal Productions (UK) et al, the claimant alleged that the defendants had infringed his copyright in a film about the Union Carbide/Bhopal petrochemical disaster. His pleadings were materially inadequate and in September 2014 he applied to amend his particulars of claim.

In December 2014, Hacon rejected this application but was not persuaded that the claimant did not have any cause of action—thus, the litigation continued and this decision concerned what would be the financial consequences of the claimant’s failed application. The judge ruled that Akhtar had acted unreasonably in failing repeatedly to address manifest defects in his pleaded case. As a result, the defendants argued that this unreasonable behaviour was such that both the limits on the scale costs and total costs in reaching a final determination of the claim in relation to liability should be lifted.

The starting point for the cost regime of the IPEC is Civil Procedure Rule (CPR) 45.30. The scale costs are laid down in the practice direction, which supplements rule 45 and sets out the maximum amount of costs which the court will award for each stage of the IPEC proceedings. For example, the maximum recoverable costs for preparing particulars of a claim are £7,000; for witness statements they are £6,000; and for preparing expert reports they are £8,000.

In F H Brundle v Perry in 2014, Hacon held that one or more of the staged scale costs could be lifted provided that the total costs limits were left undisturbed.

Under CPR 63.26 (1), the costs of an application in the IPEC will usually be reserved for the conclusion of the trial, where they will be subject to summary assessment. However, under CPR 63.26 (2), if a party has behaved unreasonably the court may at the conclusion of the hearing for the application make an order for costs. Nevertheless, in Akhtar, although CPR 45.32 states that the costs of such an application under CPR 63.26(2) are “in addition to the total costs that may be awarded”, Hacon held that any costs awarded under this rule for the unreasonable behaviour of a party would still be capped according to the particular scale limit, in this case for the failed application to amend, which was a maximum of £3,000—the sum that the judge went on to award to the defendants.

The six defendants then argued that the stage cap of £3,000 for costs relating to the failed application to amend should be applied separately for each of them. Following Gimex v The Chill Bag Company and Barry Liversidge v Owen Mumford & Abbott Laboratories, both in 2012, Hacon rejected this submission in the absence of the defendants demonstrating a need for them to run distinct, non-overlapping oppositions against the application.

“Despite the claimant being successful against two defendants, it was not allowed to apportion its legal costs of £90,000 between each defendant but could only recover costs once.”

The judge also ruled that at the forthcoming case management conference, the defendants would have to explain why they were being separately represented. In Gimex, despite the claimant being successful against two defendants, it was not allowed to apportion its legal costs of £90,000 between each defendant but could only recover costs once, amounting to the single maximum sum of £50,000.

In Liversidge, Owen Mumford and Abbott Laboratories had succeeded in demonstrating that they had not infringed the disputed patent and in doing so had incurred £36,000 and £38,000 respectively, but the IPEC held that only costs up to the total cap of £50,000 were recoverable from the claimant. Commenting on these decisions, Hacon observed that “... in some instances the rules may favour certainty over punishing unreasonable behaviour…”

The fixed-scale cost regime does not apply where (a) the IPEC considers that a party has behaved in a manner which amounts to an abuse of the court process; or (b) the claim concerns the infringement or revocation of a patent or registered design or registered trademark the validity of which has been certified by a court or by the UK Intellectual Property Office in earlier proceedings. Circumstance (b) was not relevant and Hacon held that the conduct of Akhtar did not amount to an abuse of the court’s process.

Finally, under CPR 45.31 (4A), in addition to the scale costs, (i) court fees, (ii) costs relating to the enforcement of any court order and (iii) wasted costs are recoverable. The judge left open the question of whether at the conclusion of the proceedings the defendants could seek an award from the claimant’s legal representatives for wasted costs.

Capping damages

There is no flexibility regarding the IPEC’s damages limit of £500,000 unless the parties agree to an increase on the cap. This rigidity of the cap was highlighted in OOO Abbott & Chasmer v (1) Design & Display and (2) Eureka Display in 2014, a case where a judgment had been given against both defendants for design infringement and the claimant had elected to have its compensation assessed by an account of profits. Following the case management conference relating to the account, the claimants accepted a part 36 offer made on behalf of Eureka. CPR part 36 is a mechanism by which parties are encouraged towards settlement because there are severe financial penalties if subsequently the party making the offer does not obtain a more advantageous award from the court.

After making the offer, at the enquiry it was ordered that the defendant, Design & Display, should pay £488,173. Shortly afterwards, Eureka ascertained that its own infringing sales were in fact six or seven times greater than it had earlier indicated and in light of this new information, the offer and its acceptance by mutual consent were appropriately withdrawn. It was common ground that with Eureka’s enhanced sales the amount of unlawful profit by both defendants would exceed the IPEC’s cap of £500,000.

Nevertheless, even in these extreme circumstances Hacon held that there was only a single cap and not one per defendant, noting that “the parties are entitled to certainty with regard to damages just as much as with costs”. On first view, this might appear unjust but as the judge explained it is always open to a claimant either to start separate IPEC proceedings against each defendant, as even if the proceedings were eventually heard together there would be separate caps for each set of proceedings, or else the claimant could commence proceedings in the English High Court (where there are no caps). Following the hearing, OOO Abbott applied to have the inquiry transferred to the English High Court, a mechanism that is rarely used.

As a general rule, IP disputes are split, ie, the courts first decide on liability and then, as appropriate, the parties engage with the court on what financial awards should be made to the successful claimant. This issue of splitting arose in Uwug Limited & Uwe Haiss v Derek Ball in March 2015, a case in which the defendant was found to have infringed design rights in a frame used in the fetish market. The IPEC had to unravel a complicated position over costs when only at the enquiry into damages did the court become aware that the defendant had some months earlier made a part 36 offer that greatly outweighed what was likely to be awarded to the claimant.

The cap on recoverable total costs for enquiries in the IPEC is set at £25,000. In light of this decision, it is useful to note that subsequently under the reforms made to part 36 offers, which came into effect on April 6, 2015, courts may now after the hearing of a preliminary issue be told of the existence of such offers but not necessarily any terms covering unresolved issues.

Patrick Cantrill is a partner at  Bond Dickinson. He can be contacted at: patrick.cantrill@bonddickinson.com

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