Tuesday, 13 November 2012

Costs awards when both sides claim to be the winner

Vernacare Ltd v Environmental Pulp Products Ltd [2012] EWPCC 49 is an instructive decision of Judge Colin Birss QC, Patents County Court (England and Wales) on the assessment of costs. In this litigation, the court found Vernacare's patent valid and infringed. Environmental Pulp Products Ltd (EPP) agreed that, if the patent was valid, the first version of its product infringed the patent but denied that the second and third versions infringed.  According to the court, the second version infringed but the third did not.

When it came to costs, Vernacare argued that it should have its costs since it had after all won: its patent had been found valid and infringed by two versions of EPP's product. EPP disagreed and said that it was the real-world commercial winner: all that really mattered was that its version three did not infringe, versions one and two being of historic interest only. Moreover, said EPP, Vernacare had even made things worse by failing to engage with offers to settle or to conduct mediation.

The judge opened by asking three questions:
(a) who won?
(b) did the winner lose on an issue which was suitably circumscribed to deprive that party of the costs of that issue?
(c) was the case was a suitably exceptional one to justify making a costs order on that issue against the party which had won overall?. 
Having established this, Judge Birss QC proceeded as follows:
* In determining the successful party, a judge has to look at the facts and decide who, as a matter of substance and reality, had won. True, EPP's freedom to sell its version three was of significant commercial importance to it -- but that did not mean that it could be regarded as the winner for the purposes of assessing the action's costs.  Looking at the dispute from where the judge sat, EPP had firmly pressed its claim that the patent was wholly invalid and that version two did not infringe, even if the patent was valid. So far as validity was concerned, EPP relied on (i) three cited items of prior art, (ii) an attack of obviousness over the common general knowledge and (ii) added matter. However, when it came to the trial, EPP ceased to relyon one of the prior art citations and its other validity challenges failed.  It was indeed Vernacare which emerged as the winner of the legal proceedings, although EPP's victory in relation to version three would be taken into account on an issue-based approach to costs. 
* When deciding what order, if any, to make about costs, the court has to consider all the circumstances -- including the parties' conduct, their success in part if not in whole, and any admissible offers to settle. Here it would be fair to deduct 25% from Vernacare's costs to reflect EPP's success on the version 3 issue. A further 5% would be knocked off in relation to the issue of obviousness over common general knowledge. So far as conduct was concerned, while Vernacare's success on validity meant that it had achieved more than EPP had offered, Vernacare could and should have engaged more constructively with EPP's attempts to negotiate. This being so, a further 5% would be subtracted, leaving Vernacare with 65% of its costs.

* In a summary assessment of costs in the Patents County Court, a judge should start with the actual costs for a given stage, then assess them on the normal Patents County Court basis; the resulting figure was the one to which any issue-based discount should be applied.  Once this discount has been applied, the figure should be compared to the appropriate scale in the Civil Procedure Rules (CPR PD 43-48) and the lower of the two sums will then be taken.

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