Indemnity Costs in the IPEC

Indemnity Costs in the IPEC

One of the great successes of the Intellectual Property Enterprise Court (the “IPEC”, formerly known as the Patents County Court) is the recognition that not all IP matters are of high enough value to be held in the high court. By setting costs and damages caps (at time of writing, £50K and £500K respectively), it undeniably increases access to justice for small to medium size businesses not willing to risk or subject themselves to the potential, unlimited, damages and costs recovery mechanisms of the high court. The IPEC, however, recently considered in Phonographic Performance Limited v Raymond Hagan (aka Raymond Edward Hagan) t/a Lower Ground Bar and The Brent Tavern and others [2016] EWHC 3076 (IPEC) whether the costs caps still apply when a winning party is entitled to Part 36 indemnity costs which reach beyond the caps.

Phonographic Performance Limited (“PPL”) is a music licensing company. The primary defendant is a bar owner alleged to have played unlicensed music in public. The facts behind the case itself are reasonably uninteresting, except that the defendant was found to be difficult and evasive about his identity. The judge ultimately ruled against the defendants and Hagan’s conduct was raised as a considering factor in relation to the costs award against him.

The interesting part of this judgment, however, was the ruling on the “Part 36” offer made by PPL. A Part 36 offer is a tool used by litigants at any stage prior to trial to entice and incentivise the other party into settlement. The rules of its use are reasonably complex, but in general what it does is place an additional “indemnity” costs burden on the offeree if (1) they do not accept the offer and (2) the offeror achieves a judgment in its favour at least as advantageous as its offer. Needless to say, it can be a very beneficial tool used at the right time and in the right circumstances.

HHJ Hacon recognised there is a tension between the IPEC costs caps the Part 36 indemnity costs regime. There are already limited exceptions where the IPEC can award (and has awarded) above the costs cap, but to date Part 36 indemnity costs has not formed one of those exceptions. HHJ Hacon referred to a Court of Appeal case which looked at a similar issue, but applied to fixed costs regimes for low value personal injury cases, where it held that Part 36 took precedence over those fixed costs. HHJ Hacon applied this by analogy and considered that Part 36 overrides the costs caps of the IPEC.

So why is this interesting for users of the IPEC? For many, the costs caps are a welcome upper limit, ensuring that in relevant cases there is no burden to pay the winning side more than the overall costs cap of £50K. For others, the limit can be seen as overly restrictive, in particular where the complexity of the case is such that it is still suitable for IPEC but may result in higher costs than could ever be recovered (patent cases in particular, but design cases or complex trade mark or copyright matters are also relevant here).

It is also important to note that this judgment doesn’t apply just to the overall costs cap of £50k, but to the ‘stage costs’ implied by the IPEC. Stage costs are the maximum costs available for recovery for preparing certain stages of litigation. For example, where a Claimant could not previously recover more than £7,000 for drafting Particulars of Claim, indemnity costs would now apply, providing for a small, but important uplift, in particular where one stage may be more valuable to recover than others.

The IPEC encourages parties (as do all the courts) to do everything possible to settle the matter and to not be a burden on court time wherever possible. The entire purpose behind the Part 36 regime is to incentivise that settlement. So perhaps it is not surprising that HHJ Hacon has allowed Part 36 to override the IPEC costs caps. Part 36 offers still may not be appropriate in all cases, but arguably, for claimant/offerors in particular, using Part 36 offers looks to be a much more appealing tactic and is a IPEC litigation tool that may get more traction going forward.