Cost caps in the Patents County Court: bad news for SMEs?

A recent case in the Patents County Court (when will they get around to renaming it the Intellectual Property County Court?) has explained how the court will apply the caps on legal costs that may be claimed there. The caps are sometimes summarised as a single figure – £50,000 – but actually it is a series of caps for each stage in proceedings that could add up to £75,000. Confused? Will this recent case make things clearer? Read on…

The case was brought by the clothes designer, Dame Vivienne Westwood, against an internet trader, Mr Knight, for infringement of various trade marks and copyright and passing off. The case started off in the High Court but was then transferred to the Patents County Court (PCC) at an early stage. Westwood was represented by the leading IP law firm, Taylor Wessing. Knight represented himself. The case is reported here and last week’s costs award is reported here.  The various costs caps in the PCC are helpfully set out in a table in the latter judgment.

In his judgment on costs, His Honour Judge Birss QC explained the process for determining costs.  In essence, there is a three stage process:

1. Determine what costs were actually incurred, and group them in the categories for which costs limits apply in the PCC.

2. Reduce the actual costs by assessment in the traditional way – this is likely to result in a reduction by about one third, assuming that costs have not been awarded on an exceptional “indemnity” basis.

3. If any of the amounts resulting from stage 2 exceeds the PCC limit, reduce the amount to the PCC limit.

As Judge Birss points out, the caps on costs in the PCC are designed to provide certainty for litigants.  They are also designed to make smaller-scale IP litigation more affordable, particularly for small and medium sized enterprises (SMEs).  We are not sure that the latter objective has been given sufficient attention in Judge Birss’s costs ruling, particularly for the SME litigant who wins his case and wishes to recover costs from the loser.

The costs judgment also provides a table that compares Westwood’s actual legal costs with the costs awarded by the court.  The picture is complicated by the fact that proceedings started in the High Court, where no cap applies.  In respect of those stages of proceedings conducted in the PCC, the costs figures can be summarised and approximated as follows:

Stage 1: Costs incurred – £80,000

Stage 2: Costs assessed – £50,000

Stage 3: Costs awarded after caps applied – £35,000

This blogger finds these figures troubling.  We recently advised an SME on possible trade mark infringement proceedings.  One of the SME’s primary concerns was to know whether the costs of bringing the proceedings in the PCC would be recovered (assuming the court awarded costs in our client’s favour).  On the above figures, less than half of the costs incurred would be recovered.  In our case, we had been working on the assumption that the case would cost about £75,000 to run, and that £50,000 would be recovered.

The difference between our case and the Westwood one is is no doubt partly due to the high hourly rates of specialist City firms.  But we are particularly concerned about the “double whammy” that stages 2 and 3 create.

I seem to recall comments when the new PCC rules were being set up, that it should be possible for a small, efficient IP firm to run a case within the PCC costs limits.  At the time, I thought this was ambitious but might just be possible using junior IP litigators.  However, it is never going to be possible if costs are assessed by the court at less than the amount that is incurred.  Surely the costs caps provide sufficient control over excessive expenditure, and it should not be necessary to apply a traditional costs assessment as well?


Filed under Intellectual Property

5 responses to “Cost caps in the Patents County Court: bad news for SMEs?

  1. Well, I have helped a few SME clients through IP-related litigation, and Chris’s comment seems right.

    Generally, the level of costs that we incur through running a tight ship (keeping the issues under control, using a team of 1x Patent Attorney plus 1x junior barrister) meant that last time, our costs in High Court litigation came out about one third of the costs incurred by the middle-tier IP-specialist solicitors on the other side. Now, whilst that kind of approach is not going to be adequate for really major IP litigation over a blockbuster patent, it works perfectly well for the kind of case that we applied it to (and in case you’re wondering, yes we did win). The other side’s costs were needlessly high because they automatically applied the “full team” approach of partner, associate & junior solicitor plus barrister. Whilst that gives some efficiencies, in that the partner is not spending time doing stuff that the junior could do, and there are three heads coming up with ideas instead of just one, it also imposes overheads in that the three have to keep meeting up to brief each other and update each other on what they have found out/done. For major cases, I suspect the efficiencies win out and the case is run better as a result of the full team being there. For a smaller case such as the one in question, the overheads outweighed the efficiencies.

    Now, that kind of case is exactly the sort that should be in the PCC. My view, based on my experience, is that if you have a PCC-appropriate case and you run it in an efficient manner, it should be possible to keep within all the individual cost caps apart from (probably) the £6,125 cap for the Statement of Case. Do that, and (as I have found in the High Court) your costs will not be cut on summary assessment and the client may well get almost all their costs back.

    So for cases that should be in the PCC it can be done, but it will require solicitors to re-think the way they work. Is that necessarily a bad thing?

    There is another benefit to the costs cap, though. What really frightens SMEs away from enforcing their IP is the downside risk – that if they lose, they are liable for an potentially unlimited amount of costs. Even if we assume a 1/3 reduction on assessment, that still leaves 2/3 of an unknown amount. The potential claimant can talk to his advisors about limiting their bill, and can choose a team that is efficient, but he has no control over what the defendant does. For all he knows, the defendant could run off to a Magic Circle firm and run up massive costs in a very short time – a powerful tactic in response to SME claimants, if you have the funds.

    The PCC’s cost cap kills that tactic, and that worry. Clients seem much more willing to consider litigating once they are told about it – and that may prove to be the real benefit. OK, they might lose out a little on the costs they recover, but at least they have the confidence to bring the case in the first place.

    • I agree with your sentiments about the value of the cost cap, and agree that many SMEs are concerned about the costs of losing. However, I believe they are also concerned about the costs of winning, and my impression is that this issue is sometimes overlooked by commentators. Unless the claimant finds a legal team that is willing to limit itself to charging the amount awarded by the court, he has a costs exposure. This problem is particularly acute where the claimant doesn’t know the extent of the infringement and therefore what his damages will be (and under the English system, doesn’t get to find this out until after the trial of liability). On small scale infringements, this is a real issue.

  2. Chris Hall

    I have little or no experience of litigation so am happy to be corrected, but my understanding of the decision is a little different to this commentary. It seems to me the disparity between costs incurred and costs awarded in this case is almost entirely down to the caps which are applied at each stage of the proceedings, not the summary assessment which attracts such criticism here.

    The new PCC rules apply limits to the recoverable costs in each stage of proceedings; a further cap of £50,000 is applied to the aggregate total.

    Judge Birss summarily assessed costs for each stage of proceedings, prior to applying the cap. But in only one of those stages were the summarily assessed costs below the cap (by £500). In all other stages the assessed costs were higher than the cap, and so the cap applied (as it would have done anyway). Put another way, the process without summary assessment would have been

    Stage 1: Costs incurred £80,000
    Stage 2: Costs awarded after caps applied £35,500.

    Not much difference there?

    • Chris, good point. On the figures you quote, it didn’t make much difference that there was a two-stage process of cost reduction. I am more concerned about the principle of offering up costs for assessment that are within the caps and still get reduced by applying a traditional approach. I would prefer an assumption that if the costs are within the relevant cap, they should be awarded 100% unless there is a very strong reason for doing differently.

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