77M v Ordnance Survey - access to justice for SMEs in IPEC

It is getting more difficult to drag
the IPECat to the Chancery Division...

On 15 June 2017, His Honour Judge Hacon dismissed Ordnance Survey’s application to transfer proceedings from the Intellectual Property Enterprise Court to the Chancery Division in 77M Ltd v Ordnance Survey Ltd [2017] EWHC 1501 (IPEC).  One of the AmeriKat's colleagues, Josh Angrave, summarizes the decision for readers:

Background

The claim relates to a product developed by 77M called “Matrix”, which is a database of geospatial and other information. 77M maintains that it has spent over £500,000 in developing the product and, in the process, has licensed data from at least 15 organisations including OS.  

77M issued a claim on 19 August 2016 seeking:

(i) a declaration that the development of its product does not infringe any database or copyright belonging to OS, and is not in breach of any contract with OS; 

(ii) a declaration that the licensing or use of the product by its customers does not infringe such rights or breach any contract with the OS; 

(iii) an injunction to restrain OS from making any allegations to the contrary effect; and 

(iv) an injunction to restrain OS from instructing third parties to withhold data from 77M.

77M, as an SME, sought the protection of the costs regime as it applies in IPEC, having taken out after-the-event insurance to cover the opposing side’s costs of the litigation up to the £50,000 cap (at [10-11]). Whilst OS, a government-owned body with substantial licensing revenues, stated that its claim to damages, in its counterclaim, may exceed the IPEC cap of £500,000 (at [20]).

The requirements to order a transfer

In accordance with CPR 63.18 (2) and the provisions of Practice Direction 30(9), when deciding whether to order a transfer of proceedings to or from the IPEC the court will consider whether:

"(1) a party can only afford to bring or defend the claim in the Intellectual Property Enterprise Court; and 

(2) the claim is appropriate to be determined by the Intellectual Property Enterprise Court having regard in particular to – (a) the value of the claim (including the value of an injunction); 

(b) the complexity of the issues; and 

(c) the estimated length of the trial. 

9.2 Where the court orders proceedings to be transferred to or from the Intellectual Property Enterprise Court it may – (1) specify terms for such a transfer; and
(2) award reduced or no costs where it allows the claimant to withdraw the claim. Access to Justice – ‘the decisive factor’"

The cost capping system of IPEC, and its predecessor the Patents County Court, is considered one such method of facilitating access to justice for smaller and medium sized enterprises who could otherwise not afford to litigate in the High Court. Indeed, His Honour Judge Birss (as he then was) in ALK-Abello Limited v Meridian Medical Technologies [2010] EWPCC 14, described access to justice for small and medium sized enterprises as a ‘decisive factor’.

However, in Comic Enterprises Limited v Twentieth Century Fox Film Corporation [2012] EWPCC 133, His Honour Judge Birss held that "the decisive factor" was Comic Enterprises’ approach to the litigation, despite its being an SME (Katpost here). In that case, Birss transferred the proceedings from the PCC to the High Court because Comic Enterprises ran the action as if it was full scale High Court style litigation rather that if it were a more modest claim in the PCC.  Birss J concluded that “the ultimate objective of an order for transfer is to do justice between the parties” (at [48]). In the present case, His Honour Judge Hacon held that “a transfer to the general Chancery Division would raise a serious likelihood of having the practical effect of blocking 77M’s access to justice” (at[24]).

With regards to Practice Direction 30(9)(1), Hacon HHJ held that 77M as an SME with limited financial resources is precisely the kind of litigant that is entitled to the benefit of the costs cap in IPEC, subject to other considerations. In particular, Hacon HHJ stated: “I do not take the view that it is incumbent upon an SME to prove exhaustively that it cannot access loans from elsewhere to fund litigation” (at [14]). Notably, OS offered no formal undertaking that it would agree to limit the costs liability of 77M so as to mitigate the risk of a high costs liability if the case were to be transferred to the Chancery Division (at [15]). In relation to the value of the claim under Practice Direction 30(9)(2)(a), Hacon HHJ was not convinced that the value of the injunction would be so extraordinarily high for IPEC to hear the case.

On the complexity of the issues, OS cited Comic Enterprises v Twentieth Century Fox in arguing that 77M had not approached this litigation as though it were a modest IPEC claim. This was argued by reference to the original Particulars of Claim, which were settled by junior and leading counsel. There was also opposition by 77M to an extension of the confidentiality club, which resulted in an application before the court (at [17]). Although Hacon HHJ agreed that the pleadings by 77M were “somewhat over-developed”, he did not see this as a case in which 77M pleaded either worthless causes of action or worthless defences (at [18]). Finally, on the estimated length of the trial, Hacon HHJ held that the maximum three day limit in IPEC should be sufficient, notwithstanding the complexity of the case, and provided that OS may revisit the question of a transfer at the CMC (at [21-23]).

Summary 

The risk that 77M would be severely affected by an adverse costs order in the Chancery Division outweighed OS’ arguments that the complexity of the case necessitated conduct of the litigation in IPEC. However, an SME does not have an unfettered right to stay in IPEC, and if a larger defendant wishes to be sued in the High Court they should at least provide an undertaking to limit the costs liability to another specified amount should they win. As HHJ Birss (as he then was) noted, a lower incursion of costs should suit both parties, especially in the case of a publicly funded litigant such as OS (at [16]).