Costs in discontinued proceedings: Earth Closet orders are flushed away

Moule's Patent
Earth Closet

Fresenius Kabi Deutschland GmbH and others v Carefusion 303 Inc [2011] EWCA Civ 1288 CA (Civ Div), is a ruling yesterday by the Court of Appeal, England and Wales.  Unusually, two of the three judges are former members of the Patents Court (Lord Neuberger and Lord Justice Lewison LJ -- the odd man out being Lord Justice Aikens. The ruling addressed the peculiarly-named "Earth Closet order" -- a nineteenth-century device which owes its origins to Baird v Moule's Patent Earth Closet Co Ltd (1881) LR 17 Ch D 139.

Giving the judgment of the Court, Lord Justice Lewison explains the background most eloquently at paragraphs 2 to 3:

"If you tell a commercial litigator who is not steeped in the law of patents that a patentee can sue for infringement and then discontinue his claim against the alleged infringer and consent to the revocation of his patent, yet require the alleged infringer to pay a substantial proportion of his costs, his reaction would be one of bafflement. If you went on to explain that this situation came about because the alleged infringer had amended his defence and counterclaim to plead a new piece of prior art he would be none the wiser. This is the practice of the Patents Court in making a See v Scott-Paine order (See v Scott-Paine (1933) 50 RPC 56) previously more robustly known as an Earth Closet order (Baird v Moule's Patent Earth Closet Co Ltd 3 February 1876). Such an order enables the patentee to discontinue his claim and consent to the revocation of his patent on terms that he pays the costs of the action up to the date of service of the original defence; but that the alleged infringer pays the costs of the action from that date down to the date of discontinuance. 

Why, the commercial litigator would ask, do you assume that but for the amendment the patentee would have won his case; because that is the unspoken assumption on which such an order rests? And why do you assume that it was the fact of the amendment that caused the patentee to abandon his claim? You might then explain that patent litigation is governed by special rules, more particularly those contained in CPR [the Civil Procedure Rules] Part 63. On looking at that Part the commercial litigator would discover that certain other rules of the CPR had been modified or disapplied. But he would also see that CPR Part 63 does not modify or disapply CPR Part 38.6 which says that unless the court orders otherwise a claimant who discontinues is liable to pay the defendant's costs. So why are patent cases different?"

Overruling Baird v Moule's Patent Earth Closet Co Ltd, the Court of Appeal said that Earth Closet orders should not be made -- and that the sooner the practice stopped, the better. In all forms of litigation, a party who wanted to discontinue his action without bearing the usual costs consequences of discontinuance had to shift the burden of justifying a departure from the default rule and thus had to apply under CPR r.38.6, there being no reason why patent cases should be treated differently from any others.

The Court added that there was no case law to suggest that Earth Closet orders were mandatory, however well-established might have been the practice of making them.  Even so, there was no reason why a patentee who decided that the incurring of additional expense to deal with amendments to a defence was not financially viable could not say that his claim was being abandoned as a result of those amendments.