Tuesday 22 March 2011

PCC Page 21: Offering to settle can be a strong tactic

The PatLit PCC Series, informatively drafted by the Chartered Institute of Patent Attorneys (CIPA), seeks to explain how litigation works in the recently-revamped Patents County Court (PCC) for England and Wales, taking as its theme a dispute between Cautious Co and IPOff Ltd as to whether IPOff has infringed the IP rights of Cautious in its robotic octopus. In this episode, the 21st, CIPA President Alasdair Poore reviews the strategic and other advantages of offering to settle the dispute before it goes too far ... 
Cautious has reached the stage – an important stage in the proceedings against IPOff -- where his patent attorney is reviewing all the issues to make sure that the case is a robust one and that there are no gaps in it.  A natural occasion on which to do this is when preparing for the Case Management Conference (CMC), for which the date has now been fixed.  At the same time he is considering what form of order he would like at the CMC, and will shortly be attending a hearing – regrettably using a solicitor and barrister – in the High Court to have IPOff’s parallel claim for threats issued in the Patents Court struck out or at least moved to the PCC.
 One question which is on his patent attorney’s mind is whether there is a settlement option which should be considered, and in particular whether there may be any formal offer of settlement which could be put to IPOff.  Of course, one can always propose a settlement to the other party.  Typically an offer will be on a “without prejudice” basis.  This means that it cannot be shown to the court or relied on by the other party (except, obviously, if agreement is reached, in which case it can be shown to the court for the purpose of enforcement). What Cautious’ patent attorney wants, however, is something which creates some pressure on IPOff – a tactical settlement offer, which creates some risks for IPOff.  The Civil Procedure Rules (CPR) effectively provide two tools for doing this – CPR 36 (or Part 36 as it is often described) and CPR 44.3 (it need hardly be added that IPOff’s solicitor will be considering the very same questions). Part 36 (CPR 36) It is important that every litigator understands CPR 36 well, and knows how to use it tactically (and what to do when faced with a Part 36 offer).  Why?  Because it was specifically introduced to put pressure on a party not to fight unless it is confident that it will win.  Practical Law Company describes it as “one of the most important tactical steps that parties can take. … parties and their advisers should consider making Part 36 offers at all key stages.” 
 The rules in CPR 36 are not simple, and Cautious’ patent attorney should refer to them carefully. For example, if the offer is not made in the appropriate way it will not be a Part 36 offer, and the effects of the offer will not follow.   If done correctly, these effects can be dramatic: if Cautious makes an offer and IPOff goes all the way to trial and then does not get a better judgment (ie Cautious gets a judgment which is the same as or more advantageous than the offer it made), then Cautious will usually automatically be entitled to indemnity costs from usually 21 days after the offer was made, and interest on the judgment amount and those costs at up to 10% above bank base rate from the same date.
  The 'costs cap' in the PCC is going to undermine some of this.  Under CPR 45 and PD 43-48 25C, only 'scale costs' can be awarded unless a party has behaved in a manner which amounts to an abuse of process (CPR 45.41).  Nevertheless, as noted in earlier PCC Pages, the scale amount is a maximum (CPR 45.42).  The provision for indemnity costs means that it will be easier to show what level of costs is appropriate up to the maximum, because in the case of indemnity costs the court will resolve any doubt as to whether it was necessary to incur the costs in favour of the receiving party (CPR44.4(3)).  A little more potent is the interest award, which is in addition to any damages cap (The Patents County Court (Financial Limits Order) 2011, Article 2) or cap on costs (although, even in this case, if time to trial is quick, then the amount may be small).  A third incentive, is that it is clear that IPOff’s solicitor will have to discuss the offer and consequences with IPOff.
 Note that there is clearly an incentive in PCC proceedings, where there is a long delay in the stages up to the CMC, to make sure that a Part 36 offer is, so far as possible, considered at the very beginning of the case (or even before it).  More discussion on Part 36 will follow when Cautious formulates his offer. A Part 36 offer is “without prejudice as to costs” – ie it cannot (and must not) be shown to a judge who may be involved in trial other than after trial on a question of costs, or with the consent of all the parties. Beware too: CPR 36 was amended in the past few years so don’t rely on age-old memory (assuming it works).  Some of the changes are around payments into court (which are no longer required). CPR 44.3 Part 36 offers are not the only sort of offer which has costs consequences – but the costs consequences can be rather more dramatic, and the alternative (a Calderbank Offer) is often not very attractive to a claimant.
 A Calderbank Offer is an offer which is made “without prejudice save as to costs”.  The effect of this is that the offer can be shown to the judge on a determination as to costs (but not before), and in that case the provisions of CPR 44.3 come into play – allowing the Court a general discretion to adjust the costs payable between the parties (which would otherwise normally be on the basis that the winning party wins their costs) to reflect the sort of offer which has been made (see in particular CPR 44.3(4)(c)).  Typically such an offer is more likely to be one made by a defendant. Thus a defendant might make an offer for a lesser amount (or in respect of some issues), and then be entitled to ask the Court for its costs from a reasonable date after the offer, if the claimant then did not win more than that amount or those issues.  It is less attractive to a claimant to make such an offer as, if the claimant wins, it will usually be entitled to all its costs (on a standard basis (see CPR 44.4(2)) in any event – indeed this was one of the reasons for introducing Part 36 -- in order to provide a tool in the claimant’s armoury, which meant that there was a real penalty for a defendant not considering the offer). 


Anonymous said...

Why isn't Cautious applying for the transfer to the PCC on the papers. that's what Counsel told me I could do when I balked at his fees and it worked

apoore@mills-reeve.com said...

Can you drop me a line with details. I would like to add it in as a twist. Much better to draw on real life. (Also was getting too smart for a moment thinking that it would not work here as Cautious patent attorney would need to be a patent attorney litigator -- but he is (if I recollect his credential correctly)).