In recent years, the Patents County Court (PCC), in particular through the efforts of Judge Colin Birss QC, has taken great strides to make IP litigation more affordable and accessible for smaller businesses. A key provision at its disposal is a cap on the costs which a party may be required to pay if it loses. Two recent cases have allowed the PCC to demonstrate its approach to costs when applying the cap across several parties.

The two cases, Gimex International v The Chill Bag Company and others [2012] EWPCC 34 and Liversidge v Owen Mumford and another [2012] EWPCC 40, concerned claims for IP infringement against multiple defendants. In Liversidge, a claim for patent infringement, the claimant lost: the patent was invalid and not infringed. The defendants, as the winning parties, sought to recover their costs from the claimant. The two defendants were separately represented and presented separate claims as to costs (the judge stressed that, in the circumstances, the defendants should not be criticised for having separate representation). The defendants sought to recover costs of about £36,000 and about £38,000 respectively.

In Gimex, a claim for infringement of a registered design, the claimant won insofar as the design was held to be valid and infringed (the apportionment of liability between the defendants remains outstanding). The claimant, as the winning party, sought to recover its costs from the defendants. The defendants split broadly into two ‘camps’, with the first camp representing itself, and the second camp being jointly represented by counsel. The claimant sought to recover costs of about £45,000 from each of the two camps of defendants (a total of £90,000).

In both cases, the question arose as to how the cap on costs should be applied. The cap appears in Civil Procedure Rule 45.42(1): ‘…the court will not order a party to pay total costs of more than… £50,000 on the final determination of a claim in relation to liability.’ In Liversidge, the PCC interpreted this to mean that the two defendants taken together could not recover more than £50,000 from the claimant. This result seems clear given the wording of rule 45.42(1) and the principles which underlie it. The primary objective of the costs regime is to compensate the successful party for the costs which it reasonably incurs. In the PCC, the cap mitigates the potential liability of an unsuccessful party. It enables a party to litigate with the certainty that it will not be required to pay more than a known amount for other parties’ costs should it lose. Rule 45.42 says that Mr Liversidge should not pay more than £50,000 for the other parties’ costs. This is the comfort with which he embarked on the litigation, and this was the result.

In Gimex, where the claimant won, it was decided that the claimant could not recover more than an aggregate total of £50,000. The cap of £50,000 would be shared between the two camps of defendants so that, on a crude average, each camp would pay no more than £25,000 (in the circumstances, the precise mechanism for splitting the costs between the two camps was left for them to decide between themselves). The rationale for this decision is somewhat less obvious.

While rule 45.42 places a limit on how much a party may be required to pay, the CPR does not cap how much a party may recover. The wording of rule 45.42 might suggest that the claimant could recover a higher amount, so long as each defendant is not ordered to pay total costs of more than £50,000 (for example, if there were two defendants, the claimant might recover up to £100,000). This would achieve the dual aims of the PCC’s adapted costs regime. The successful claimant would be compensated, while each defendant would know in advance that it will not be required to pay more than £50,000 towards the claimant’s costs.

So how did the PCC reach its conclusion in Gimex? The claimant argued that, had it lost the case, it would have had to pay costs to each of the two camps of defendants, each with their own costs cap. Therefore, it would be unfair for the claimant, having won the case, to have its costs limited by one aggregate cap. However, as subsequently shown in Liversidge, the initial premise of this argument turned out to be mistaken: the total costs payable by an unsuccessful claimant, regardless of the number of defendants, will be capped at £50,000. Therefore, in Gimex, since there was no justification for the claimant’s argument, the cap was applied across the body of defendants as a whole.

Presumably the PCC was concerned about ensuring ‘equality of arms’, another key objective of the regime encouraging access to justice. Arguably, if several defendants each had separate caps on costs, then the claimant’s potential recovery would be higher than its exposure, but the reverse would apply for each defendant. In that scenario, each party (claimant and defendant) could go into battle knowing that its individual exposure if it loses would be limited to £50,000. The limit on the claimant’s potential recovery (if it wins) would be multiplied by the number of defendants, while each defendant’s potential recovery (if the claimant loses) would be diluted by the number of other defendants. The claimant might feel that the risks are greater for each defendant, tipping the balance of power in its favour.

However, a similar concern arises from the decision in Gimex, albeit in the opposite direction, where there is a single, aggregate cap across all defendants. Each defendant’s potential recovery (if the claimant loses) remains diluted by the number of other defendants (as in Liversidge); but now the claimant’s potential recovery (if it wins), and each defendant’s exposure, is also diluted. One might also argue that, all things being equal, the greater the number of defendants, the larger the pool of funds available to them as a collective. Each defendant may now feel that the balance of power is tipped in its favour.

Ultimately, the PCC recognised that this was a choice between competing policy considerations. In line with its efforts towards access to justice, the choice made suggests that the PCC is keen to encourage parties, regardless of their number, to keep costs down. The PCC also recognised that the position is flexible. There may be circumstances where this result is not appropriate, for example because one defendant wins while the other defendant loses, or because the defendants run very different cases. In such cases, parties would be well advised to keep an eye on how costs may diverge.

Jim McDonnell, DLA Piper