UPC Weekly - Let’s talk about costs

2024 Week 21

This week we focus how the UPC is dealing with requests for security for costs and the pressure that these requests can bring to bear on the parties. 

The loser pays – but how much?

At the UPC, the basic principle is that the losing party pays the legal costs of the winning party. These costs include court fees and attorney fees. The court has wide discretion on this but a cap on costs applies, based on the value of the dispute.

There are many ongoing cases at the UPC, both preliminary injunction applications and main infringement and revocation actions. As these cases progress, the courts of the UPC are issuing interim orders on various topics and in particular on the all-important question of costs.

There is a ceiling on the costs recoverable by the winning side in UPC litigation, the ceiling depending on the value of the case:

Value of the proceeding

Ceiling for recovering costs

Up to and including 250.000 € Up to 38.000 €
Up to and including 500.000 € Up to 56.000 €
Up to and including 1.000.000 € Up to 112.000 €
Up to and including 2.000.000 € Up to 200.000 €
Up to and including 4.000.000 € Up to 400.000 €
Up to and including 8.000.000 € Up to 600.000 €
Up to and including 16.000.000 € Up to 800.000 €
Up to and including 30.000.000 € Up to 1.200.000 €
Up to and including 50.000.000 € Up to 1.500.000 €
More than 50.000.000 € Up to 2.000.000 €

Each case has a written phase, an interim phase and an oral hearing phase. However, it is only in the interim phase that a judge decides on the value of the case.

We are now seeing orders coming out of the UPC where one party has requested security for costs from the other side, but at such an early stage in the proceedings that the value of the case has not yet been set by the UPC. The result of this is that the UPC is slightly winging it in terms of the amounts of costs being considered, but they are clearly setting the legal principles to be applied.

What if it looks like one of the parties can’t pay?

A party will typically request security for costs where they fear that the other side will not be able to pay a costs award at the end of the proceedings. Although the UPC Agreement indicates that it would be the defendant seeking security for costs from the claimant, the Rules of Procedure broaden this out so that any party can request security for costs from the other side.

A preliminary injunction application was filed in Ballinno vs. UEFA. The defendants argued that the claimant had no assets other than the patent and requested security for costs on this basis. The claimant countered that security for costs should not apply in a preliminary injunction application. However, the court disagreed in May 2024 and ordered security for costs of 56,000 euro.

This case contrasts with a bigger case about 2 weeks earlier. In 10x Genomics v. Curio Bioscience a preliminary injunction was awarded, as discussed previously. Additionally, there was a request for security for costs. But here it was the claimant 10x who was seeking security for costs against the defendant Curio. The court considered this and decided that in principle this is possible in respect of the main proceedings – the rules of procedure allow “any party” to make an application for security for costs against the other side. However, the court decided that this should not be applicable in preliminary injunction cases.

In three related cases, the UPC Local Division in Munich decided in April 2024 not to require security for costs from Network Systems Technologies (claimant) in their infringement actions against Texas Instruments, Audi and Volkswagen (defendants). The court decided that the domicile of the claimant in the US was not relevant. The claimant was an SME with annual turnover of less than 10m euro. The court considered that there was insufficient evidence to show that the claimant would not be able to pay an adverse costs order. This decision is currently under appeal.

Similarly, in AIM v. Supponor (October 2023), the court did not award security for costs because there was insufficient evidence of a risk of insolvency.

Also in October 2023, in Nanostring v. Harvard, the court ordered security for costs of 300,000 euros against Nanostring. Nanostring filed a revocation action against the Harvard patent. Harvard applied for security for costs. In a related case, Nanostring had argued that the award of a preliminary injunction against it would pose an existential threat to Nanostring. In part because that preliminary injunction ended up being imposed, the court considered that this cast doubt on the financial resources of Nanostring to pay costs in this case.

The court made a calculation starting from the maximum recoverable amount based on the likely value of the proceedings, and halved this to reach the figure of 300,000 euro. Their logic for this was based on proportionality and the fact that the defendant can apply later in the proceedings for an additional security for costs if needed.

Plant-e v. Arkyne (February 2024) included an infringement action and a counterclaim for revocation. The court decided that there should be no security for costs. Although there was evidence of possible limited financial means for both SME parties, the court decided that awarding security for costs would place serious financial strain on the claimant and limit its access to justice.

In ICPillar v. Arm, Arm filed a request for security for costs against ICPillar, which had started patent infringement proceedings against various Arm group companies. Arm’s arguments were based on ICPillar’s US domicile and that its financial position was not clear, as a company set up by the inventor of the patent and with revenues only from patent licensing. The court considered that the domicile of ICPillar in the US caused no problems – a UPC costs order could be enforced in the US. However, at issue was the financial position. Although ICPillar had an insurance policy against an adverse award of costs, its terms were unclear. In May 2024 the court decided to require security for costs (as a deposit or a bank guarantee) of one third of the likely maximum amount of recoverable costs, leading to a figure of 400,000 euros.

Where do we stand?

It is clear that the main issue when considering security for costs is the financial position of the parties. To succeed in forcing security for costs, it is necessary to show evidence of a likely inability to pay.

The domicile of the parties is less important, but may be a factor in some cases. Parties domiciled in the EU seem slightly less likely to be required to give security for costs.

It is clear that either side can request security for costs in main UPC proceedings. However, there are divergent decisions on whether security for costs should be available in preliminary injunction applications.

It looks like the Court of Appeal will weigh in soon to start to impose some uniformity on the answers to these questions.