ECJ on Reimbursement of Legal Fees in IP Litigation

On 28 July 2016, the Court of Justice of the European Union (the “ECJ”) issued an important judgment on the recovery of legal fees. In particular, the ruling relates to national rules capping the amount that can be recovered in IP cases (Case C-57/15 United Video Properties Inc. v. Telenet NV).  

The question was referred to the ECJ by the Court of Appeal of Antwerp in a dispute between Belgian internet service provider Telenet and United Video Properties Inc., an American company specialised in digital entertainment technology. Telenet had challenged the conformity of the Belgian system which limits the amount of lawyers’ fees that can be recovered (i.e., Article 1022 of the Judicial Code (Gerechtelijk Wetboek/Code Judiciaire) with Article 14 of Directive 2004/48 of 29 April 2004 on the enforcement of intellectual property rights (the “Enforcement Directive”). The latter provision allows for the recovery of reasonable and proportionate legal costs and other expenses incurred by the party prevailing in an IP lawsuit. Telenet also questioned whether this provision would be infringed by case-law of the Belgian Supreme Court (Hof van Cassatie/Cour de Cassation) stating that fees paid to agents specialised in the fields of patents (i.e., other expenses) could only be recovered where the party prevailing can show (i) that the other party acted wrongfully and (ii) that the fees of the patent expert were a necessary consequence of the action initiated by the other party (See VBB on Belgian Business Law, this Newsletter, Volume 2015, No. 3, p. 11 and 12, available at www.vbb.com ).

In these proceedings, the Court of Appeal of Antwerp submitted a question to the ECJ for a preliminary ruling. The ECJ first stated that Article 14 of the Enforcement Directive does not prohibit systems of capped recovery of legal costs per se. Nevertheless, the ECJ held that Article 14 of the Enforcement Directive precludes any cap or limitation which does not allow the prevailing party to recover “a significant and appropriate part of the reasonable costs incurred by the successful party”. As a consequence, national laws imposing a cap significantly below the average feels actually charged for the services of a lawyer in that Member State will be deemed unreasonable.

In addition, such legislation will be incompatible with Article 3(2) of the Enforcement Directive as it diminishes the dissuasive effect of any action for infringement since the infringer would only be ordered to reimburse a small part of the reasonable lawyer’s fees incurred by the injured right holder. Article 3(2) of the Enforcement Directive states that IP enforcement “procedures and remedies shall also be effective, proportionate and dissuasive”. The ECJ explained that legislation which imposes an unreasonably low cap is incompatible with this provision and with the aim pursued by the Enforcement Directive (recital 10) which is to ensure a high level of protection of intellectual property rights in the internal market.  

The ECJ furthermore ruled that Article 14 of the Enforcement Directive precludes any Member State legislation requiring a fault on the part of the other party for the costs of a technical adviser incurred by the prevailing party to be reimbursed. The ECJ clarified that the concept of ‘other expenses’ within the meaning of Article 14 of the Enforcement Directive must interpreted narrowly as only those costs that are directly and closely related to the judicial proceedings.