Cost Caps at IPEC – Access to Justice for SMEs

77M Ltd v Ordnance Survey Ltd [2017] EWHC 1501 (IPEC)

The cost of litigation is capped at the Intellectual Property Enterprise Court (IPEC) in order to ensure access to justice for smaller parties such as SMEs. However, proceedings can be transferred to the High Court where costs are much higher. In this case the IPEC decided that access to justice by the SME bringing the claim would be prejudiced by being transferred to the High Court largely because of the increased costs and decided that the case should be heard by the IPEC.

The overriding objective of the court system according to the civil procedure rules is that the court is able to deal with cases justly and at proportionate cost.

It has long been a concern that justice might be denied to small entities pursuing patent claims because the costs of litigation would be simply too great to bear. To address these concerns the Patents County Court and its successor the Intellectual Property Enterprise Court have been set up to decide cases in which damages and costs that are capped at £500,000 and £50,000, respectively. Furthermore, the time limit for a trial in IPEC is three days.

This cost capping system is a means to allow access to justice for smaller and medium sized enterprises who could otherwise not afford to litigate in the High Court.

However, should a case be more complex than can be dealt with within these limits then the case can be transferred to the Chancery Division of the High Court.

A recent case before the IPEC (77M Ltd v Ordnance Survey Ltd [2017] EWHC 1501 (IPEC)) considered whether proceedings should be transferred to the High Court from IPEC.

77M is an SME that has spent over £500,000 in developing a system called “Matrix”, which is a database of geospatial and other information. In the process, has licensed data from at least 15 organisations including OS. 77M issued a claim against Ordnance Survey (OS) and sought to use the protection of the capped cost regime of IPEC to limit its cost liabilities. In contrast, OS is a government institution with substantial income from licensing revenue. OS considered that its counterclaim for damages might exceed the IPEC cap of £500,000 and thus sought to transfer proceedings to the High Court.

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.

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’

In a previous decision of IPEC ( Comic Enterprises Limited v Twentieth Century Fox Film Corporation [2012] EWPCC 133) it was decided that the manner of the parties’ approach to litigation was decisive for selecting which forum would decide the issues. In Comic Enterprises versus Twentieth Century Fox both sides prosecuted their claims as if they were being litigated in the High Court rather than in the lower-cost and more accessible IPEC. Accordingly, in this instance proceedings were transferred to the High Court.

OS referred to the particulars of 77M’s claim as having been prepared as if for the High Court rather than the IPEC and cited the decision made in the case of Comic Enterprises versus Twentieth Century Fox as supporting their request that proceedings be transferred to the High Court.

In making this decision His Honour Judge Hacon noted that the pleadings by 77M were “somewhat over-developed” but did not consider that 77M pleaded either worthless causes of action or worthless defences (paragraph 18 of the decision). Furthermore he considered that notwithstanding the complexity of the case the maximum three-day limit for a trial before the IPEC should be sufficient and that the value of the eventual award would not be so high that the IPEC should not hear the case. It was also notable that OS did not offer to limit the costs liability of 77M were the IPEC to agree to their request and the case to be transferred to the High Court.

Hacon HHJ also observed that 77M as an SME with limited financial resources is precisely the kind of litigant that is intended the benefit of the costs cap in the IPEC. Accordingly, in contrast to the decision in Comic Enterprises versus Twentieth Century Fox Hacon HHJ 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 paragraph [24] of the decision).

Thus Hacon HHJ concluded that 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 meant that the litigation should be conducted in the IPEC.

This appears to be a ‘win’ for 77M and litigating SMEs in general. However, this does not mean that SMEs will always have the right to have proceedings decided by the IPEC but this decision does indicate that the cost burden on SMEs is persuasive in deciding the forum for litigation. Litigants with deeper pockets might persuade the IPEC the other way, and successfully transfer proceedings to the High Court, by providing an undertaking to limit the costs liability to a specified amount should they win.