Claimant ordered to provide security for costs, denied legal aid

UPC_CFI_224/2024 & UPC_CFI_786/2024

Decision of 27 January 2025 (Order no. ORD_4250/2025, Order no. ORD_4288/2025)

The UPC ruled that the Claimant in an infringement proceeding must provide security for costs of the Defendant. The Court further held that, despite the strained financial situation of the Claimant, that the Claimant was not eligible for legal aid because of the reduced size of security ordered.

A single judgment was published as two Orders, one relating to the provision of security and another relating to the request for legal aid. The judgment was displayed heavily redacted, with the names of both the Claimant and Defendant, and the patent involved, not published.

Background

The Defendant requested the provision of security for infringement proceedings, citing in particular the credit rating of the Claimant supplied by Tokyo Shoko Research, according to which the Claimant’s credit rating was in the category “some caution necessary”. The Defendant therefore requested that security be provided for costs in the amount of €257,000. The Claimant applied to reject the Defendant’s request and, in the alternative, to reduce the security to a lower amount. As evidence, the Claimant submitted their balance sheets for 2021 to 2023, stating that their finances were balanced, stable and trustworthy. Further, the Claimant requested legal aid for the proceedings.

Security

The Court ordered security for costs to be provided by the Claimant.

The Court held that the state of the Claimant’s finances justified the request for security. Although their financial records showed a gross profit in the most recent period, an operating loss was posted after deducting distribution, administrative and general expenses. Although the profit and loss statement ultimately showed a new profit after adding non-operating and unspecific regular income and deducting non-operational expenses, this did not justify the rejection of the application for security, since the net profit did not come close to covering the Defendant’s expected costs at the first instance. Further, the Claimant’s financial statement did not show that the Claimant had assets that would justify the rejection of the security order. The Claimant’s application for legal aid was seen as further evidence of their strained financial position.

When calculating the size of security to be ordered, the Court considered the possible costs award arising from a win for the Defendant. The upper limit, as set by the Administrative Committee of the UPC, for reimbursable costs associated with the amount in dispute was €112,000 in the first instance, and €11,000 for the court fee relating to the counterclaim for revocation. However, Art. 69 UPCA holds that costs of the maximum amount can only be determined if there are no grounds of equity to the contrary. The Court recognised that there must be a balance between assuring the reimbursable costs of representation and the principle of effective access to justice. The Claimant was held to be a small enterprise in view of its turnover and number of employees. Accordingly, the Court held that security must be calculated in such a way that effective access to justice is possible and the company’s action is not dismissed by a default judgment due to security that it cannot provide.

The security in respect of representation costs for the first instance was set at 50% of the upper limit of the reimbursable costs, and security for the court fee for the counterclaim of revocation was set at 60% of the fee. The security therefore totalled €62,600, to be paid within four weeks.

Legal aid

The application for legal aid was rejected.

The Claimant argued it would be in need of legal aid if ordered to pay the sum, which it considered exorbitant, requested by the Defendant in security for costs, which situation did not arise. The Claimant had not argued that it was in need of legal aid in view of its own costs (court fees for the infringement action, costs for its own representation). The Claimant stated in an auxiliary request that they may be able to provide a security deposit of a particular value (redacted) in the form of a bank guarantee. The ordered value was only slightly higher than this, so it was deemed that the Claimant was likely in a position to both provide the requested security, and also cover the court fees for the infringement action and costs for its own representation.

The decision was appealable.

The Court left open the question of whether companies are also entitled to legal aid before the UPC – such aid may be providable under the EU Charter of Fundamental Rights and the European Convention on Human rights, although Art 71(1) UPCA appears to restrict legal aid to natural persons.