The highs and lows of compensation

27-04-2017

Michiel Rijsdijk

The ‘loser pays’ principle has resulted in a variety of compensation awards in patent disputes, from several hundred euros to hundreds of thousands of euros. To create a semblance of predictability on the amounts, guidelines on indicative rates were introduced.

The guidelines are currently under review, to assess how they work in practice and how they relate to the 2016 Court of Justice of the European Union (CJEU) ruling in United Video Properties v Telenet.

District courts, appeal courts and the Supreme Court all use the so-called ‘indicatietarieven’ approach. These indicative rates are set by the Netherlands Bar Association and the judicial authorities. They consist of maximum amounts for summary proceedings, proceedings on the merits, appeal cases and Supreme Court cases, further sub-divided into simple and normal proceedings, proceedings with and without counterclaims, and oral proceedings.

For example, the maximum fee for simple proceedings on the merits without counterclaims and/or oral proceedings is €8,000 ($8,705). There is currently a proposal to increase the subdivisions to very simple, simple, normal and complex.

When a court determines how to qualify the legal proceedings as simple or normal, the following characteristics are relevant: the scope of fact finding; size of the body of facts; basis of the claim; scope of the defence; and number of exhibits. The financial interest of the parties in the outcome of the dispute is not mentioned as a relevant circumstance in the guidelines.

The indicative rates are applicable only to IP cases that are covered by the scope of article 1019h of the Dutch Code of Civil Proceedings, which implements article 14 of the enforcement directive (2004/48). Nullity proceedings are excluded from the scope. Furthermore, patent cases are not covered by the guidelines on the indicative rates.

The guidelines mention as reasons for this exclusion the wildly varying complexity of patent cases, which would not fit well into a framework, and the lack of the existence of a chilling effect, which would be reduced by introducing indicative fees. In practice the parties often agree before the oral hearing the amount considered to be fair and equitable in patent cases.

As the wording shows, the rates are only indicative. However if a party claims compensation of higher legal costs than the indicative rates, this party must substantiate that claim. It must show why deviation would be justified and why the legal costs incurred are reasonable. In practice we see that courts adhere more strictly to the guidelines on indicative fees.

As a result parties that seek compensation which surpasses the maximum amount in the guidelines must undertake considerable effort to show this. The guidelines are currently under revision but would set a higher cap.

United Video

The abovementioned maximum amount on the compensation of legal costs calls into mind the ruling of the CJEU in United Video. That case concerned Belgian legislation which set a maximum amount—an absolute reimbursement ceiling—which was also described as a flat rate.

"The different rates in the Netherlands allow for the specific features of the case to be taken into account."

The CJEU found that national legislation which provides a flat rate with a maximum amount that is too low is precluded by the enforcement directive. If the ceiling is too low it is not ensured that the costs borne by the losing party are a significant and appropriate part of the reasonable costs incurred by the successful party. The ‘loser pays’ principle would not be sufficiently adhered to.

The different rates in the Netherlands allow for the specific features of the case to be taken into account. The maximum rates contained in the guidelines in the Netherlands have just been reviewed to assess whether the ceiling is too low. The difference with the Belgian legislation appears to be that in the Netherlands the courts are not obliged to follow the guidelines, although there is a recent tendency to adhere more strictly to the maximum amount set in them.

Another difference is the scope of the guidelines. United Video concerned a patent case, but patent cases are expressly excluded from the Dutch guidelines. This has once again been confirmed in the current revision.

The application of the compensation of the full legal costs has seen some highs and lows in the Netherlands. The guidelines on the indicative rates aim to reduce this volatility by creating foreseeability on the maximum costs to be compensated, while also adhering to the CJEU ruling in United Video. A difficult but laudable task.

Michiel Rijsdijk is a partner at Arnold + Siedsma. He can be contacted at: mrijsdijk@arnold-siedsma.com  

Michiel Rijsdijk, Court of Justice of the European Union, CJEU, Netherlands Bar Association, United Video, Arnold + Siedsma

WIPR