Everyone knows that judicial proceedings are often time-consuming and costly, and involve considerable lawyers’ fees. In Belgium, the capped ‘procedural indemnity’ (“rechtsplegingsvergoeding” / “indemnité de procedure”) granted to the successful party is far from sufficient to cover these costs in their entirety, especially in complex IP infringement cases.
On 28 July 2016 the Court of Justice of the European Union (“CJEU”) rendered a ground-breaking judgment, setting out the limits for the legality of such system of fixed maximum amounts for the reimbursement of legal costs, in the light of EU Member States’ obligation to guarantee the effective protection of IP rights.
Legal context
Reimbursement of lawyers’ fees under Belgian law
In Belgium, judges are not free to determine the amount of the procedural indemnity to be granted to the ‘successful party’ in court proceedings. The procedural indemnity consists of a fixed (standard, minimum or maximum) amount determined by Royal Decree, which is meant to cover all the legal costs incurred by the successful party.
Examples:
- in a trademark infringement case where the claim of the trademark owner amounts to EUR 200,000, the standard procedural indemnity amounts to EUR 6.000, the minimum procedural indemnity EUR 1.200, and the maximum amount to EUR 12.000;
- In IP infringement cessation proceedings (in which no monetary claim is formulated), the standard procedural indemnity amounts to EUR 1.440, the minimum procedural indemnity EUR 90, and the maximum amount to EUR 12.000.These amounts do not reflect reality, especially in case of complex and lengthy proceedings involving multiple lawyers. As a consequence, the procedural indemnity granted to the successful party is often far from covering all the legal costs actually incurred.With respect to other expenses incurred in the framework of court proceedings (e.g. fees of a technical expert or a private investigator), the Belgian Court of Cassation has decided that a successful party is only entitled to recover those costs if it can demonstrate (1) that the other party was at fault, and (2) that these other costs were a necessary consequence thereof.
Directive 2004/48 on the enforcement of intellectual property rights
Under EU law, Member States are obliged to ensure adequate and effective IP enforcement procedures and remedies. In particular, article 14 of EU Directive 2004/48 provides that “Member States shall ensure that reasonable and proportionate legal costs and other expenses incurred by the successful party shall, as a general rule, be borne by the unsuccessful party, unless equity does not allow this”.
Background of the dispute and questions referred to the CJEU
United Video Properties (“UVP”) had filed a request for an injunction against Telenet, claiming that Telenet infringed its patent rights. UVP’s patent was however declared invalid by the first court, and its action was dismissed. UVP consequently lodged an appeal but, in the end, decided to discontinue the proceedings. After this discontinuance, Telenet requested that UVP be ordered to reimburse EUR 185.462,55 by way of lawyers’ fees, and EUR 44.400 for the assistance provided by a technical adviser.
The maximum procedural indemnity that could be granted to Telenet amounted however to EUR 11.000, i.e. an amount that corresponds to approximately 5 % of the total amount spent.
In this context, two questions were referred to the CJEU for a preliminary ruling:
- Is the Belgian system of varying flat rates in respect of costs for the assistance of a lawyer during court proceedings violating article 14 of EU Directive 2004/48?
- Is the Belgian case-law, which states that the costs of a technical adviser are recoverable only in the event of fault (contractual or extra-contractual), violating article 14 of EU Directive 2004/48?
Findings of the CJEU
(1) Is a flat-rate system with a cap on the reimbursement of lawyers’ fees violating EU law? No, but…
After recalling that EU Directive 2004/48 only requires Member States to ensure the reimbursement of ‘reasonable’ legal costs (and not of unnecessary or excessive expenses), the CJEU declared that:
- a flat-rate system could, in principle, be justified, provided that it is intended to ensure the reasonableness of the costs to be reimbursed;
- legislation imposing a flat-rate significantly below the average rate actually charged for the services of a lawyer in that Member State, is not justified;
- the dissuasive effect of an IP infringement action were to be seriously diminished if the infringer would be ordered only to reimburse a small part of the lawyers’ fees incurred by the injured IP owner; and
- concerning the validity of an absolute limit for the reimbursement of legal costs, that such limit can be justified, if it reflects the reality and if the reasonable costs actually incurred by the successful party are reimbursed.
In light of the above, the CJEU concludes that a system of varying flat rates with an absolute limit for the reimbursement of lawyers’ fees is not prohibited as such, provided that these rates ensure that the costs to be borne by the unsuccessful party are reasonable, which it is for the referring court to determine.
If, on the other hand, owing to the maximum amounts being too low, such system does not ensure that a significant and appropriate part of the reasonable costs incurred by the successful party are borne by the unsuccessful party, such system is to be considered incompatible with EU Directive 2004/48.
(2)Is the fault-requirement for the reimbursement of “other” legal expenses violating EU law? It depends…
The CJEU considers that the answer to the second question posed depends on the link between those “other” costs and the judicial action.
If the costs are directly and closely related to the judicial action (e.g. if the technical expert is hired to assist the claimant in bringing the action against the infringer), they should be reimbursed. However, if these costs have no direct link with the judicial action but were made, for example, to investigate in a general manner possible IP infringements, attributable to unknown infringers at that stage, they should only be reimbursed if it is proven that the unsuccessful party has indeed engaged in an infringing activity.
Conclusion: Ground breaking judgment for companies seeking to enforce their IP rights in Belgium
Companies seeking to enforce their IP rights before the Belgian courts usually incur significant legal costs due to the complexity and length of such proceedings.
Following this CJEU judgment:
- Belgian judges can now order the full reimbursement of lawyers’ fees by the ‘losing party’ in IP infringement cases, regardless of the applicable maximum procedural indemnity rate, if they deem this maximum cap not to allow for a “significant and appropriate part of the reasonable costs to be recovered“;
- It is expected that the Belgian legislator will be encouraged to reconsider the current statutory capped amounts, and to determine a more appropriate and realistic scale of reimbursement of legal costs, at least in IP infringement proceedings; and
- A number of “other” court-related expenses, such as technical advisers’ fees, will be eligible for reimbursement without proof of fault being required, provided that they have a direct link with the judicial action.
For these reasons, this judgment will in our view have a positive effect on the degree of protection afforded to IP rights owners in Belgium, and in any other EU Member State that has a similar reimbursement system in place.
