UPC Weekly - Costs: the UPC’s Big Lever

2024 Week 40

This week we report on a UPC Court of Appeal decision that focuses only on costs, and the principle that the loser pays. But there are interesting signs that the UPC expects the parties to be reasonable by sending each other adequate warnings of their intentions to litigate – otherwise there may be adverse costs consequences.

Background – the loser pays, but up to a ceiling

At the UPC, the basic principle is that the losing party pays the legal costs of the winning party. These costs include court fees, attorney fees, fees for experts and other expenses. 

There is a ceiling on the costs recoverable by the winning side in UPC litigation, the ceiling depending on the value of the case. Confusingly, the ceiling is also variable. It is possible for a party to request that the ceiling is lowered if the level of costs would threaten the economic existence of that party. For very complex cases, it is also possible for a party to request that the ceiling is raised. So we are left with this table of normal and maximum ceilings for recoverable costs:

Costs after settlement?

In Edwards v Meril, the UPC Court of Appeal was faced with a decision to make about costs, everything else in the case having been settled. To understand the costs order, we have to look back at the history of the case.

In June 2023, Edwards had sent Meril a warning letter regarding infringement of Edwards’ EP 3763331 B1 for a prosthetic heart valve crimping device. Meril replied three weeks later to argue that the patent was invalid and not infringed. On 18 July 2023, Edwards filed an application for a preliminary injunction at the UPC. Meril filed a lengthy defence on 25 August 2023 and Edwards replied on 11 September 2023 with their own many-paged response.

However, on 25 September 2023, Meril offered a cease-and-desist declaration to Edwards. Edwards accepted this a few days later and therefore there was no longer any need for a preliminary injunction – the undertakings agreed by Meril would take its place.

Although the preliminary injunction proceedings were closed, the parties could not agree who should bear the costs of the proceedings. The UPC Local Division had set the value of the dispute at 1.500.000 € and their view was that Meril should pay Edwards’ costs, up to the allowed normal ceiling of 200.000 € (see table above).

Meril argued that, although they had agreed to cease-and-desist undertakings, they had not admitted infringement or agreed that the patent was valid. They also argued that in view of the settlement, Edwards could not claim to be the “successful party” with a claim to costs – there was no decision or order of the court that indicated that Edwards had succeeded.

The UPC Court of Appeal took a good look at these arguments and dismissed them. Their view was that Edwards had succeeded in its objectives in the litigation and therefore must be seen as the successful party, even if the action had been settled.

What about if the patentee launches UPC proceedings without warning?

All of this makes good practical sense. But the reason for highlighting this case is not really its outcome, but instead some of the interesting hypotheticals proposed by the Court of Appeal.

Here, they said that Meril had opportunities to agree to Edwards’ demands earlier – either in response to the warning letter or perhaps in response to the application for a preliminary injunction. Meril instead fought the case and put Edwards to significant additional costs before settling.

The Court of Appeal considered an alternative reality in which the patentee starts a UPC action without any warning to the defendant. Even if the patentee then forces the defendant into a settlement quickly, they may not be awarded their full costs, because by failing to give suitable warning, they have put the defendant (and the court) to unnecessary costs.

In the words of the Court of Appeal:
“An exception to the general rule of Art. 69(1) UPCA may apply if a plaintiff initiates proceedings without first sending a warning letter and the defendant issues a cease-and-desist declaration immediately at the beginning of the proceedings. In such a situation, it may be justified to award costs to the defendant on equitable grounds, in particular because the plaintiff has caused unnecessary costs to the defendant and the court.”

Should you send a warning letter?

The intention of the UPC’s costs regime is to allow the court wide discretion with the intention of nudging the parties’ behaviour during litigation. Reasonable and proportionate costs may be recovered by the winning party, up to a threshold, but unreasonable behaviour is likely to be labelled as leading to unnecessary costs.

We are starting to see the outline of guidance for the pre-action behaviour of parties. If the claimant decides to proceed with a UPC action without a warning to the other side, then they are at risk of not recovering all of their costs. Or worse, even if they win the case, they are at risk of having to pay the other side’s costs.

Which leads us to the next obvious series of questions: What kind of warning is reasonable? How much detail should you give the other side? Should you say exactly what remedies you would seek from the court? Should you show the evidence that you have? How much time should you give the other side to reply?

At the moment, the UPC has not given clear answers to these questions. But starting from first principles, the answers are likely to pivot on whether the defendant has enough information and time to assess its position and agree to the claimant’s demands. With adequate warning, and no sign of settlement from the defendant, the claimant can reasonably argue that it is time to resort to the UPC to protect its interests. And recover costs.