The Court of Justice of the European Union (‘CJEU’) has ruled that Article 14 of the Enforcement Directive (2004/48/EC) does not preclude national legislation which provides only for a flat-rate reimbursement of legal costs to a successful party; however, such legislation must allow a successful party to recover, at the very least, a “significant and appropriate part” of their reasonable legal costs actually incurred. This decision could potentially have important ramifications for the costs capping system currently employed in the Intellectual Property Enterprise Court (“IPEC”).

The case in question, which originated from the courts of Belgium, concerned a dispute between United Video Properties (‘UVP’) and Telenet NV (‘Telenet’) in relation to a patent owned by UVP. After the commencement of Belgian proceedings, UVP decided to discontinue its infringement action and, as a result, Telenet was awarded legal costs of €11 000 (the maximum amount recoverable under the flat-rate reimbursement scheme provided for by Belgian statute). However, such an award represented a small proportion of the legal costs actually incurred by Telenet, which totalled €185 462.55. This total did not include an additional cost of €44 400 incurred by Telenet in obtaining the services of a specialised patent agent, which was also not recoverable under Belgian case law (unless it could be proved that UVP were at fault in bringing the action).

Telenet argued that Belgian law was incompatible with Article 14 of the Enforcement Directive, which provides that “Member States shall ensure that reasonable and proportionate legal costs and other expenses incurred by the successful party shall, as a general rule, be borne by the unsuccessful party, unless equity does not allow this.” The Belgian Court of Appeal sought guidance from the CJEU seeking clarification as to whether the terms “reasonable and proportionate legal costs and other expenses” in Article 14 precluded (a) a system of varying flat rates in respect of costs for the assistance of a lawyer; and (b) Belgian law which stated that the costs of the specialised patent agent were not recoverable.

The CJEU held that a flat-rate costs recovery scheme was not incompatible with Article 14 in principle; however, it was stressed that Article 14 does require costs awards to be “proportionate”, which inevitably requires a comparison between the amount awarded and the actual legal costs incurred by the successful party. It was held that, costs awarded under a flat-rate recovery scheme must provide the successful party with, at the very least, a “significant and appropriate part” of their reasonable legal costs. If this is not the case, then the flat-rate system will be incompatible with EU law.

In relation to the costs incurred by Telenet in obtaining the services of a specialised patent agent, the CJEU determined that Telenet should be entitled to recover these costs under EU law because these costs were directly and closely linked to the judicial action.

It will be interesting to see whether this case and any resultant finding in relation to the recovery of approximately €11 000 when over €200 000 was in fact incurred encourages a challenge to the cost-capping system currently employed by judges in the IPEC. In principle, this decision lends support to the contention that the IPEC costs system is inconsistent with Article 14 of the Enforcement Directive (often costs far exceed the maximum recoverable amount of £50,000). However appealing on such a point may result in a referral to Europe and this makes the costs involved particularly off-putting to a party who had already been unable to recover a good proportion of their legal costs, especially if there is an appeal on any other legal points which could result in an argument for greater recovery of costs becoming an own goal.

Link to Judgment

Judgment Date: 28 JULY 2016