UPC: the Munich CD requires security for legal costs based on financial factors and Brexit

In an order dated 30 October 2023, the Munich Central Division of the UPC ordered the claimant in a revocation action to pay a security of € 300,000 for the defendant’s legal costs (ord. 574057/23 – UPC_CFI 252/2023, President and Fellows of Harward College vs NanoString Technologies Europe Ltd).

The defendant’s request was grounded on Art. 69(4) UPCA and Rule 158 RoP. This allows the Court, following a reasoned request by one party at any time during proceedings, to order the other party to provide adequate security to cover the requesting party’s legal costs which they may become liable to bear.

As highlighted in this case, the Court has discretion to order this lodging of security, based specifically on:

i)               the financial position of the party, that may give rise to a legitimate and real concern that a possible cost order might not be recoverable; and/or

ii)              the likelihood that a possible cost order by the UPC may not be enforceable, or only be enforceable in an unduly burdensome way.

In this specific case, the CD found that ordering security was appropriate based on the following considerations:

i)               the plaintiff is based in the UK, where, after Brexit, Regulation (EU) No 1215/2012 no longer applies, and which is furthermore not a member of the Lugano Convention or other instruments regulating the automatic recognition and enforcement of judgments issued by EU Courts. Hence, “there is undoubtedly an additional (procedural) burden and uncertainty on the party seeking to enforce a UPC (cost) judgement in the UK compared to other (EU) jurisdictions”;

ii)              the parent company of the claimant, in parallel proceedings pending before the UPC, had declared that an injunction issued against it would put at risk the existence of the entire group, and the injunction was in fact issued thus materialising that risk;

iii)            the claimant had not provided any information as to its own financial position or assets, but relied solely on the cash position of its group of companies. However, the CD noted:

-       “the group, in its own words, has never been profitable and therefore relies on money from investors”;

-       “it is undisputed by the claimant that the group has long-term debts exceeding the amount of its cash position”.

As to the amount of security, the defendant referred to the table of ceilings for reimbursable costs as set by the Administrative Committee (AC) of the UPC, thus claiming that the security for a value in dispute of € 7,5 million would be € 600,000. The CD instead found that it was fair, reasonable and proportionate to require a security of € 300,000, since:

i)               the table as drawn up by the AC relates to the maximum amount of costs recoverable; and

ii)              art. 69 UPCA provides that only “reasonable and proportionate” legal costs shall be paid by the unsuccessful party, and that “equity” shall also be considered. As the defendant had not provided any information as to its actual costs and whether these are reasonable and proportionate, € 300,000 was deemed adequate.

The order already gave rise to discussions in relation to the “Brexit” factor considered by the court, also because a similar argument, made with reference to the US jurisdiction, was instead dismissed by the Munich local division in another case (ord. 576853/23 UPC_CFI 12/2023).

On the other hand, it might be questionable whether, in principle, it is fair to impose such a security requirement without any assessment of the likelihood that the party will succeed, based on the merits of their claim, and subsequently have to pay the other party’s legal costs or not. Indeed, this might prohibit companies from enforcing their rights, even in clear-cut cases, if they are not “rich enough”.

[For an overview of unitary patents and UPC, find our posts here on this blog and our podcast here on Spotify]