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Belgium: Ruling of the Court of Justice of the European Union on the Belgian system for recovery of lawyer’s fees and costs of technical experts in IP litigation cases: To an enhanced recovery system for the successful party (Case C-57/15)?

  • United Kingdom
  • Belgium
  • Health and life sciences

08-12-2016

In our quarterly newsletter of June 2015 ,we reported on a preliminary ruling referred to the Court of Justice of the European Union (“CJEU”) by judgement of the Court of Appeal of Antwerp dated 26 January 2015. The referral addressed the compatibility of Belgian legal provisions concerning recovery of legal costs, on the one hand, and the Belgian case law on the recovery of expert fees, on the other hand, with Article 14 of the Directive 2004/48/EG of the European Parliament and the Council of 29 April 2004 on the enforcement of intellectual property rights (“Enforcement Directive”).

A brief recap of the Belgian recovery system

Article 1022 of the Judicial Code provides a scheme for the recovery of lawyers’ fees and costs by the successful party in civil and commercial litigation cases, including IP litigation cases (i.e. a flat-rate reimbursement system). According to this mechanism, the successful party is entitled to a fixed amount that is deemed to recover the lawyers’ fees and other legal costs of that party. The fixed amount will depend on the value of the case and might be increased or lowered under certain conditions (e.g. either by taking into account the complexity or the manifestly unreasonable nature of the case, or both).

In relation to the fees and costs of technical experts assisting parties in legal proceedings (e.g. patent attorneys), Belgian case law (including the case law of the Belgian Supreme Court), established that such fees and costs are only recoverable in the event the unsuccessful party has committed a (contractual or extra-contractual) fault (for example, by filing or continuing an infringement action) and the fees and costs paid to the expert are the inevitable consequence thereof.

The referred questions for a preliminary ruling by the CJEU

(1)Do the terms “reasonable and proportionate legal costs and other expenses” in Article 14 of Directive 2004/48 preclude the Belgian legislation which offers courts the possibility of taking into account certain well-defined features specific to the case and which provides for a system of varying flat rates in respect of costs for the assistance of a lawyer?

(2)Do the terms “reasonable and proportionate legal costs” and “other expenses” in Article 14 of Directive 2004/48 preclude the case-law which states that the costs of a technical adviser are recoverable only in the event of fault (contractual or extra-contractual)?

The judgement of the CJEU (Case C-57/15, 28 July 2016)

(1)Flat-rate reimbursement of lawyers’ fees

As to the first question, the CJEU first confirms that the concept “legal costs” in Article 14 of the Enforcement Directive includes, amongst others, lawyers’ fees, which constitute generally a substantial part of the costs incurred in IP enforcement proceedings.

  • Reasonableness condition

Based on the wording of Article 14 of the Enforcement Directive that Member States should ensure only the reimbursement of “reasonable costs” and Article 3(1) of the Enforcement Directive that the procedures laid down by the Member States must not be unnecessarily costly, the CJEU concludes that legislation providing for a flat-rate reimbursement of lawyers’ fees could in principle be justified, provided that it is the intent to ensure the reasonableness of the costs to be reimbursed, taken into account different factors, such as:

  • the subject matter of the proceedings involved;
  • the sum involved;
  • the work carried out to represent the client.

The CJEU gave the following examples of what could meet the condition of reasonableness: a flat-rate reimbursement of lawyers’ fees intending to exclude the reimbursement of excessive costs due to:

  • unusually high fees agreed between the successful party and its lawyers; or
  • the provision, by the lawyer, of services that are not considered necessary in order to ensure the enforcement of the IP rights at stake.

The CJEU also provides an example of a flat-rate based system that would not meet the reasonableness condition, namely Member State legislation that imposes a flat-rate system significantly below the average rate actually charged for the services of a lawyer in that Member State. Such system would be incompatible with Article 3 (2) of the Enforcement Directive, providing all procedures and remedies must be dissuasive. The dissuasive effect would be seriously diminished if the infringer could be ordered only to reimburse a small part of the reasonable lawyers’ fees.

  • Proportionality condition

Article 14 of the Enforcement Directive introduces also a proportionality condition, which cannot be assessed independently of the costs that the successful party incurred in respect of lawyers’ fees, provided they are reasonable.

According to the CJEU, the proportionality condition does not imply that there is an obligation on the Member States to provide reimbursement of the entirety of all costs incurred by the successful party. However, it does imply that the successful party should have the right to reimbursement of, at the very least, a “significant and appropriate” part of the reasonable costs actually incurred by that party.

The CJEU continued that a national legislation that lays down an absolute limit of fee recovery (such as the Belgian law), must ensure that:

  • such limit reflects reality of the rates charged for the services of a lawyer in the field of IP; and
  • at the very least, a significant and appropriate part of reasonable costs actually incurred by the successful party are borne by the unsuccessful party.

The CJEU adds that it is not possible for a legislation that provides in a recovery system with an absolute limit, particularly in a situation in which the limit is too low, to prevent the amount of those costs vastly exceeding the provided limit, so that the reimbursement which the successful party may claim becomes disproportionate or even, where applicable, insignificant.

(2)Recovery of costs of a technical adviser

Article 14 of the Enforcement Directive also provides that not only legal costs but also “other expenses” incurred by the successful party should be reimbursed. The CJEU ruled that costs incurred for services of a technical adviser should be included in this concept (for example, the services of patent attorney assisting a lawyer in a patent litigation case).

What about costs of identification and research of IP infringements? In most cases such services are also rendered by technical advisors. Referring to recital 26 of the Enforcement Directive, the CJEU ruled that such costs do not necessarily fall within the scope of Article 14 of the Enforcement Directive, but they may qualify under the damages provision of Article 13(1) of the Enforcement Directive. Therefore, the CJEU seems to leave this discussion open. In any event, the CJEU decided that a wide interpretation of the concept “other expenses” in Article 14 of the Enforcement Directive, without going into any detail about those costs, risks conferring excessive scope on Article 14 and thus depriving Article 13 of its practical effect. The CJEU therefore concludes that the concept of “other expenses” in Article 14 of the Enforcement Directive should be interpreted narrowly, i.e. only costs that are directly related to the judicial proceedings concerned fall under this concept.

The CJEU further ruled that Article 14 of the Enforcement Directive does not contain any element from which it may be concluded that Member States may subject reimbursement of “other expenses” (legal costs in general) to a condition of fault on the part of the unsuccessful party. As indicated above, the successful party will need to show a direct link between the costs and the judicial procedure concerned in order to fall under the scope of Article 14 of the Enforcement Directive. For example, a close direct link can be established in a situation where services of a technical advisor are essential in order for a legal action seeking to have such right upheld to be usefully brought.

On the other hand, the CJEU concluded that the following examples of costs of research and identification of IP infringement shall not fall under Article 14 of the Enforcement Directive, because they lack a close direct link:

  • a general observation of the market carried out by a technical advisor;
  • the detection by a technical advisor of possible infringements of IP law, attributable to unknown infringers at that stage.

Implications of the CJEU’s decision on Belgian IP proceedings

With its judgement of 28 July 2016 (C-57/15), the CJEU gives a clear message to the Belgian State that the flat-rate reimbursing system, as it presently exists, is not fully in line with what should be expected under the provisions of Article 14 of the Enforcement Directive. It is now for the Belgian legislator to examine how to deal the CJEU’s decision under Belgian national law.

In the meantime, the Belgian courts, who have the obligation to interpret and apply Belgian law in conformity with EU law, will have to give full effect to the CJEU’s decision when deciding on recovery of lawyers’ fees and costs of technical experts. In each IP enforcement case the Belgian courts will now have to examine whether the application of the existing flat-rate reimbursement system would result in an adequate reimbursement of legal costs. I.e. whether the amount that would normally be awarded under the applicable system is significantly below the average rate charged for services by lawyers in similar cases, so that such amount would not be able to provide the successful party with a significant and appropriate reimbursement of its legal costs. In the event the court concludes this is the case, it will have to set aside the applicable flat-rate and award a higher amount reflecting reimbursement of all legal costs.

The recovery of costs of technical advisors, including, but not limited to, costs of identification and research of IP infringements in IP enforcement cases will now be much more easily recoverable. In the event the successful party can show that such costs are directly related to the judicial proceedings, they will qualify as “other costs” in the sense of Article 14 of the Enforcement Directive and will be recoverable without proving any fault on the part of the unsuccessful party.

The CJEU’s judgement of 28 July 2016 will more than likely also effect decisions in other Member States that provide a capped or similar fee recovery system. It might be that, in IP enforcement cases, such systems could also be questioned on their compatibility with the Enforcement Directive and the criteria set out by the CJEU in this ruling.

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