Consultation on UPC court fees, opt-out fees and recovery of costs

Consultation on UPC court fees, opt-out fees and recovery of costs

15 May 2015

Alex May

On 8 May 2015, the UPC Preparatory Committee published its Consultation Document containing the proposed fees for litigating in, and opting out of, the UPC and a proposed scale of recoverable costs in the UPC.  Interested parties have until 31 July 2015 to comment on the proposals.  

 
The Consultation Document itself comprises:

  • a draft amendment of Rule 370 of the Rules of Procedure on Court Fees, including two alternative forms of paragraph (6) aimed at ensuring access to justice for SMEs, universities, non-profit organisations and others;
  • two draft decisions of the UPC Administrative Committee under Article 36(3) of the UPC Agreement, the first containing tables of court fees (and other important fees), the second the scale of recoverable costs; and
  • an Explanatory Note describing the approach taken to the draft amendment and decisions. 

 
The tables of court fees are separate from the Rules of Procedure because Article 36(3) requires the Administrative Committee to set these fees and to review their level periodically, whereas amendment of the Rules of Procedure will be a more cumbersome process, involving a prior opinion of the European Commission on the compatibility of the Rules with EU law (Article 41(2).
 
Rule 370, paragraphs (2) and (3) refer to the tables in the decision setting out the fixed fees and value-based fees applicable to certain types of action.  These fees apply to infringement actions, actions for a declaration of non-infringement and other actions in which a monetary remedy is sought, as well as to appeals.  The fixed fee component is €11,000, except that the fixed fee for the determination of damages (where liability is not disputed) is €3,000 and the fixed fee for an appeal is €16,000. 
 
Whether a value-based fee applies, and if so, its amount is dependent on the ‘value’ of the relevant action, a concept which may be familiar to those with experience of the German courts.  Paragraph (5) explains that the assessment of this value should “reflect the objective interest pursued by the filing party at the time of filing the action”.  Those querying the exact meaning of this sentence will note that the provision refers to Guidelines to be laid down by the Administrative Committee.  Unfortunately, a draft of those Guidelines does not accompany the consultation.  Respondents to the consultation may therefore wish to make their own observations as to how the value might be assessed.  For example, should the value in dispute closely reflect the quantum of the monetary remedy sought or limit it in some way?  In this regard, it is notable that an appeal will attract a value-based fee irrespective of whether infringement is in issue.  We look forward to seeing how this fee is to be calculated where validity alone is under appeal, and again, respondents to the consultation may wish to make comments.
 
No value-based fee will be charged if the value in dispute does not exceed €500,000, and for values above that, a scale of value-based fees applies up to a maximum fee of €220,000 for values in dispute of more than €30 million.  In proposing these figures, the Preparatory Committee have estimated that 90% of UPC actions will be valued below €4 million (so would attract a value-based fee of €20,000 or less) and that 25% of actions will be valued below €500,000.  On initial consideration, these figures appear to value the case load of the UPC on the low side.  If that is right, the Preparatory Committee’s figures may result in the UPC generating more revenue through court fees than it requires.
 
Not all types of action, however, are subject to the value-based fees.  (Rule 370, paragraph (4) sets these out.)  Most significant among these are revocation actions and revocation counterclaims, which attract a fixed fee of €20,000.  The logic for the lack of value-based fee for revocation counterclaims is unimpeachable, since this could be seen as a fee for defending oneself from allegations of patent infringement, particularly where the defendant is alleged to infringe a patent with overly broad claims.  The logic for stand-alone revocation actions is more debateable, and is to be contrasted with the fee for seeking a declaration of non-infringement which will include a value-based component.  Will this fixed fee for revocation actions result in a significant number of EPO oppositions being replicated in the UPC central division? Or might the UPC come to replace the EPO as a centralised forum for revocation, at least for the bulk of economically important states, albeit excluding some important countries such as Spain and Switzerland?
 
Amongst the court fees in this table is the €80 fee for opting a European patent family out of the exclusive jurisdiction of the UPC.  This fee seems unduly high in the context of the Preparatory Committee’s explanation that it is intended to cover administrative costs only and not to make a profit.  Indeed, patentees contemplating the administration involved might have expected a fee of an order of magnitude less.  Further, in the absence of any bulk discount, those patent departments managing large portfolios may be most concerned as they face unbudgeted fees in six, or even seven figures, should they wish to opt out all of their patents.  And of course, all of this is to preserve the status quo, and not to use the system.
 
As noted, the Preparatory Committee has proposed two alternative forms of Rule 370, paragraph (6) which take a different approach to the issue of ensuring fairness for SMEs.  Alternative 1 is said to reward particular behaviours, including the withdrawal and settlement of actions, which the Preparatory Committee intends should particularly appeal to SMEs.  On withdrawal or settlement of an action, 20%, 40% or 60% of the court fees are reimbursed depending on the stage in the action.  Alternative 2 operates in the case of SMEs by reference to their size, in terms of assets, turnover and staff headcount.  If an SME can prove that it falls below the specified thresholds, it is exempt from value-based fees.  Universities, non-profit organisations and public research organisations are eligible for similar treatment on proving their official status.  The second alternative in particular appears open to exploitation: most non-practising entities (NPEs) would appear likely to qualify for exemption under alternative 2. 
 
Rule 370, paragraph (7) is another provision aimed at ensuring access to justice, including for SMEs.  Parties able to prove that the court fees applicable to their action would threaten their economic existence may have their fixed fee reimbursed and their value-based fee reduced.  This is subject, however, to the procedural behaviour of the other party.
 
While the court fees proposed are not insignificant, the other fees associated with litigating in the UPC (including legal fees and the fees of experts and other witnesses) are likely to present SMEs with a greater burden.  Costs recovery is therefore important to SMEs, as it is to all litigants.  Pursuant to Rule 152, the second draft Administrative Committee decision contains a proposed scale of caps on recoverable costs by reference to the value in dispute.  This seeks to achieve the objective stated in Article 69 of the UPC Agreement, that successful parties are entitled to recover reasonable and proportionate costs.  Taking some examples from the scale, for disputes below €250,000 in value, the cap on cost recovery is 25% of that value, decreasing to 10% for disputes valued at €2 million and 5% for disputes valued at €16 million.  Actions valued at between €30 million and €50 million are subject to a cost recovery cap of €1.5 million, which may seem low for those used to cost recovery in the UK courts.  Lastly, and as mentioned above, it is unclear how the value in dispute and therefore the recoverable costs will be calculated where only validity is in issue.
 
No doubt the Preparatory Committee will receive a deluge of responses to their consultation over the next three months, but the issues under consideration are important and merit careful analysis and consideration.  Bearing in mind the positive and constructive way the Preparatory Committee took into account users’ views following the Rules’ consultation, it should be very worthwhile future users once again taking the time and trouble to engage in the debate.

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