The traditional route of conducting trademark litigation before the English High Court can be an expensive exercise, involving a significant amount of resource from internal and external lawyers, as well as third-party agencies such as survey companies. In addition to a party’s own costs, there is the potential financial risk from the High Court rules, which dictate that the ‘loser pays the winner’s costs’. While the High Court is undoubtedly an excellent forum for many disputes, these factors have in the past deterred some trademark owners from protecting the investment in their brands by seeking to enforce their rights in the UK. But times are changing. The recently reformed Patents County Court, which aims to provide a relatively quick and lower-cost forum for smaller IP cases, now represents an attractive alternative for some brand owners. Mediation has also been under the spotlight, with the recent implementation of the European Mediation Directive.
THE PATENTS COUNTY COURT
The Patents County Court (PCC) is something of a misnomer, since it deals with claims relating to all types of intellectual property, including trademarks. The PCC was originally set up in 1990 with the intention of offering a cheaper and more streamlined procedure than the High Court and being suitable for simpler cases. For various reasons it was not a great success and there were very few cases on its list. In 2010, however, a number of important reforms of the PCC came into effect, aimed at providing a more attractive, affordable forum for small and medium-sized enterprises litigating intellectual property. A new judge, HH Judge Birss QC (formerly a specialist IP barrister), was sworn in on 5 October 2010.
Since then, there has been a significant increase in the popularity of the PCC and it is clearly being recognised as an alternative venue to the High Court for litigating certain types of IP cases. At the time of writing, there have been over 20 reported decisions, including four trial judgments, and a further 10 cases have been listed for hearing. Two-thirds of the reported cases have concerned trademarks, passing off and/or copyright.
The ‘streamlining’ of litigation before the PCC has been achieved by significant changes to case management. Unlike in the High Court where statements of case are relatively brief, the parties must set out their respective cases fully (but concisely) at the outset. The default position is that there is no further evidence (such as witness statements and survey evidence), written argument or specific disclosure without permission of the judge, with these matters to be considered at an early case management conference. The judge will only accede to requests by the parties for additional procedural steps if satisfied that the benefit in terms of value in resolving specific issues appears likely to justify the cost.
Apart from the initial case management conference, any other applications are dealt with on paper or, failing that, by telephone or video-conference, wherever possible. The trial is limited to one or, at most, two days, with the time allocated as equally between the parties as possible. Cross-examination is limited or not permitted at all. The parties also have the option of avoiding a trial altogether by agreeing to have the case decided on the papers.
One of the most significant changes is that recoverable costs are capped at £50,000 for the final determination of liability and at £25,000 for damages/account of profits enquiries, although additional costs may be awarded if a party has acted unreasonably or in a manner that amounts to an abuse of the court’s process. Costs recovery is further limited by the Costs Practice Direction, which sets maximum recoverable costs for various stages in the action. The maximum sum recoverable for preparing witness statements, for example, is £5,000.
The cost cap does not mean that the costs payable by a party to its own representatives are limited – the limit is on exposure to paying the opponent’s costs in relation to issues won by the opponent. Costs incurred by a party in respect of its own advisors are likely to be more than the amount recoverable, and in complex cases may be significantly more. A significant proportion of one’s own costs may therefore not be recoverable, even if one is successful. In many cases, however, the restrictions on the availability of various procedural steps in the litigation will keep costs down compared with litigation before the High Court.
There are plans to limit the availability of the PCC as a forum for trademark cases to claims with a maximum value of £500,000 (excluding costs and, in most cases, interest). This limit has already been implemented in relation to patent and design cases and is expected to be extended to cover other IP rights, including trademarks, later this year.
It is possible for a party to apply to have a case transferred from the PCC to the High Court. The PCC can also transfer cases to the High Court of its own motion. In deciding whether transfer is appropriate, however, one of the factors the judge will consider is whether a party can only afford to bring or defend the claim in the PCC. Thus, litigants with limited resources should not be forced out of the PCC and into more expensive litigation, assuming that the claim is suitable for the PCC with regard to its complexity and value.
It is hoped that the PCC will now provide access to justice for many small and medium-sized entities that previously avoided enforcing their trademark rights because of the financial risk of doing so. Those parties should now be able to take action, resolving disputes more quickly and cheaply, and safe in the knowledge that there is a cap on their potential liability for their opponent’s costs, provided that they conduct the litigation in a reasonable manner.
Mediation is a voluntary and confidential form of alternative dispute resolution (ADR) in which a neutral mediator facilitates the negotiation of a settlement of a dispute between two or more parties. It has long been recognised as a valuable tool in dispute resolution in the UK, which is a view that is now endorsed strongly by the courts. Under UK court procedural guides, the courts are obliged to encourage parties to consider the use of mediation (or other forms of ADR) as a possible means of resolving entire disputes or particular issues within a dispute. Mediation may not only be cheaper and quicker than litigation, but it can also provide the opportunity for potential litigants to settle disputes while preserving their commercial relationship and market reputation, as well as providing the possibility of a wider range of solutions than those offered by litigation.
The ability of a potential claimant to suggest mediation in advance of litigation is somewhat limited in the UK by the ‘unjustified threats’ provisions in various IP statutes, such as section 21, Trade Marks Act 1994. In many circumstances, the threats provisions may expose the IPR owner to sanctions if he seeks to assert infringement in a letter before action and later fails in his claim. Nonetheless, the Practice Direction on Pre-Action Conduct recommends that, in all cases, the parties should consider using a form of ADR and, where appropriate, attempt to resolve the dispute without resorting to litigation. Without prejudice discussions, determination by an independent expert (which, in a trade mark dispute, might be a senior IP solicitor or barrister), mediation and arbitration are all suggested as possible routes.
Solicitors have a duty to advise clients of the mediation option: they are required to explain the process, the roles of the parties, their representatives and the mediator, and the cost implications. This duty continues once proceedings are underway, when parties should continue to keep mediation in mind. In trademark cases, the parties must complete an allocation questionnaire once the scope of the dispute has been defined by the first round of pleadings. The allocation questionnaire asks each party whether it wishes to have a one month stay of proceedings in order to attempt to settle the claim. At this point therefore, the parties themselves have to address the question of whether mediation (or another form of ADR) is a good idea.
The judge may also make enquiries at the case management conference as to what useful steps could be taken to resolve the dispute and the parties should be in a position to discuss this. Both the claimant and defendant may be required by the court to provide evidence that alternative means of resolving their dispute have been considered, and the court may take this into consideration when determining costs. The court may impose sanctions upon a party who unreasonably refuses to mediate.
Earlier this year, the EU Mediation Directive (Directive 2008/52/EC) was implemented in the UK. The Directive aims to encourage the use of mediation as a cost-effective and quicker alternative to litigation. Although the new legislation currently applies only to cross-border disputes (ie, disputes where the parties are domiciled or habitually resident in member states different from one another), it is possible that the UK will, in due course, extend the new provisions to cover domestic disputes, as has been the case elsewhere.
The UK was already compliant with various aspects of the Directive since, for example, it formally recognises the importance of mediation in ensuring access to justice and the courts are permitted to invite parties to mediate. Other elements of the Directive have specifically been implemented this year in changes to the Civil Procedure Rules and by statutory instrument. Those changes provide that: (i) parties can apply to court for a “mediation settlement enforcement order” to ensure that the mediated settlement has the force of a court judgment, provided that there is “explicit consent” of all parties; (ii) confidentiality is preserved so that submissions and disclosure in mediation may not be used outside the mediation, and mediators may not be compelled to give evidence in subsequent legal proceedings, except in certain circumstances (such as agreement of the parties, public policy reasons or for proving terms of the mediation agreement); and (iii) subject to conditions, time spent mediating is excluded in calculating limitation periods that are due to expire while mediation is ongoing.
There are a number of available mediation providers that cater for IP disputes, including the Centre for Effective Dispute Resolution (CEDR), ADR Group, INTA’s Panel of Neutrals and the UK-IPO itself. Several individual IP practitioners, including one of the authors, also offer a mediation service independently or through their respective firms. Some disputes are best dealt with by a specialist IP mediator, but that will not always be the case. Other characteristics, such as industry experience, business acumen, language ability and strength of personality may be more important in any particular case.
While mediation is already recognised as a valuable option for resolving disputes in the UK, the implementation of the Directive has brought it into focus again and should increase its value in settling disputes involving foreign entities. Mediation remains a consideration that should not be far from the minds of brand owners seeking to protect their rights, both prior to litigation and at all stages during proceedings.
The combination of the new PCC regime and the increased focus on mediation gives brand owners new opportunities to enforce their trademark rights in the UK at a lower cost and with more flexibility and control over the process. There will always be a place for High Court litigation when major disputes arise, but these developments have increased the options available for brand owners with a dispute on their hands and their ability to control their financial and reputational exposure.