Unpaid costs revisited

Some folk take extraordinary measures to avoid
having to pay costs in OHIM oppositions ....
(photo: Gillo, who belongs to Eleonora Rosati)

With apologies for the delay, this backlogged Kat has finally managed to revert to a subject which continues to be of concern to many readers and which was also discussed in one of the workshop sessions at last week's MARQUES conference -- what can or should be done about unpaid costs orders? While this issue has been particularly annoying in the context of unsuccessful oppositions to Community trade mark applications, it is one that crops up in lots of other little corners of IP litigation too: a costs order is made and, often being considerably less than the actual costs incurred by the winning party, it is too small for its enforcement to be cost-effective -- which tempts the losing party to ignore it.

The Max Planck Institute's Study on the Overall Functioning of the European Trade Mark System, published earlier this year and noted by the IPKat here, addressed the unpaid costs order issue. The Study recognised the existence of the problem but lacked evidence as to its scale and addressed it in terms of facilitating enforcement in national courts as follows:

"Enforcing cost awards 

4.181 There are frequent complaints about the difficulties of enforcing cost awards against parties not voluntarily paying any costs imposed against them. Even though cost decisions constitute enforceable titles, the efforts necessary for recovering money awards from uncooperative debtors are rarely warranted in view of the expense involved and the low amount of costs actually awarded. 

4.182 No reliable statistics exist showing the number of cases where debtors do not pay the costs awarded against them. Without such evidence it would appear difficult to propose solutions which would unsettle the current system. For example, it would not appear appropriate to raise the amount of costs that can be awarded merely to make an eventual enforcement procedure more realistic. 

4.183 It seems possible nevertheless to improve the current situation without changing the amounts. 

4.184 For example, not all Member States appear to have designated the competent authority for making the enforcement order, as provided for in Article 86 (2) CTMR.  ...  According to Article 86 (2) CTMR, the designated authority must be communicated to the Court of Justice and to the Office. ... [I]t would seem appropriate that the Member States must designate a single authority. Furthermore, all the details of communicating with this authority should be made available. 

4.185 Obtaining an enforcement order in a Member State will normally require a translation of the decision fixing the costs into the language of the respective Member State. Matters could be facilitated if the Office would issue on request a document, in any of the languages required, evidencing the amount of the fixed costs. The Office could have a standard document in all languages which would be completed by adding the fixed amount. The situation would improve if obtaining the order of enforcement were uncomplicated and unbureaucratic, and could actually be done directly by the creditor or his representative. 

4.186 Outside of the legislation, OHIM should discuss with the NGOs represented before it, and national authorities should discuss with organizations in their respective countries, measures to facilitate the recovery of cost awards. 

Proposals 

4.187 It is proposed to leave Article 85 CTMR and Rule 94 CTMIR unchanged. 

4.188 Article 86 (2) CTMR should be amended to require Member States to designate a single competent authority and communicate to the Court of Justice, to the Commission and to the Office all details of communication with that authority. 

4.189 The Office should develop a standard form in all languages to be issued on demand showing the amount to be enforced".

These proposals make it easier to enforce costs, but do not address the cost-effectiveness of doing so.

Moving to the results of the IPKat's recent poll look, they look like this:

What's the best way to solve the IP costs non-payment problem?

Require security for costs	95 (45%)
Make costs orders larger so that it's worth suing to recover them	9 (4%)
Monthly escalation of unpaid costs	33 (15%)
Use name-and-shame websites	4 (1%)
Render their own IP unenforceable till they pay	46 (22%)
Forgive them, for they know not what they do	20 (9%)

Security costs was by far the most attractive of the listed options, since the losing party can't walk away from its obligation. While nearly a quarter of those polled called for the opposer's IP to be rendered unenforceable till costs were paid, the practical problems which this would raise would be both undesirable and, in some cases, nearly insurmountable. Monthly escalation of unpaid costs was quite popular, but naming and shaming was not since, in the UK, where it is already in use, too many people seem quite happy to be named and shamed so long as they don't have to pay their costs orders.

An option which was not on the poll but which attracted the write-in of some notable practitioners, was that of simply scrapping costs orders entirely. Typical of this view is the position expressed by Richard Gallafent (Gallafents):

"I have not voted and will not be voting in the whole in connection with collecting unpaid costs in IP opposition proceedings because it does not provide an option of simply vacating costs awards in such proceedings across the board.

I personally favour this, because I take the view that if you are serious about intellectual property, either from seriously wanting to acquire some, or seriously wanting to stop somebody else doing so, then you ought to accept that either activity is going to cost you money. For the vast majority of cases, that is money which you can choose to spend or not. Particularly in the area of trade marks, registration is not mandatory but, of course, nor is it in connection with patents or indeed (in those rare cases where there may be opposition proceedings available) designs.

I am, of course, aware that, as far as domestic UK proceedings goes, there is a long tradition of a contribution to the winning party’s costs being made by the losing party. It is always a contribution save in the most egregious cases, but I have yet to come across a case where defending or prosecuting an opposition did not cost both parties rather more than the contribution awarded. I would scrap them in any event. I am of the view that the cost of prosecuting or defending should be factored into decision-making by the parties concerned without the distorting factor of a possible recovery of part of them.

My suspicion is that the only change that can be made without major upheaval is in connection with proceedings before the Community Trade Marks & Designs Office, where the compromise position (I assume it was a compromise position in any event) which was reached at the end of the negotiations leading up to the final Regulation was that there would be what one might characterise as a “modest” award. It certainly is modest, and while there are certainly cases where it is paid, there are many where it is simply not paid, and, of course, the (irrecoverable) cost of trying to retrieve it would substantially exceed the award itself.

I would accordingly favour scrapping the costs rule as far as OHIM proceedings are concerned. It would relieve practitioners and, indeed, the Office of activity which, in my view, is essentially entirely pointless. And, of course, there has never been any ‘costs’ aspect in EPO opposition proceedings - which can involve quite serious sums of money and more than trade mark ones usually entail".

This Kat does not personally favour scrapping costs orders, since he thinks that this could have a seriously chilling effect on the steps a small or medium sized business might feel confident to defend its trade mark application against a well-resourced but malign opponent. The Max Planck proposals are desirable in any event, but more is needed. He hopes that a satisfactory solution will be found that that, when it is, we will not end up with a patchwork of anomalies in which unpaid costs orders are treated differently as between different IP rights or different proceedings regarding the same IP right.