Legal Briefing

The new small claims track for IP cases

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Corporate and commercial | 01 April 2012

It is a little-known fact that there is currently no ‘small claims’ procedure in the UK for intellectual property (IP) claims. The small claims track has proven to be an effective and low-cost means of settling other types of low-value disputes between individuals and companies. It has been available for most other types of legal dispute for some time.

In late 2011, the UK intellectual property office (IPO) launched a call for evidence on ‘introducing a small claims track into the Patents County Court’. The period for responses ended on 16 February 2012. The responses (including Rouse’s) will become available on the IPO website in due course.

Low-value IP claims are currently assigned to the Patents County Court (PCC). This court has recently undergone considerable procedural reform and proven to be an effective venue for many disputes. However, although the new PCC procedures have simplified the process for bringing lower-value claims, you still have potential liability of up to £50,000 for your opponent’s costs, on top of your own costs and any damages payment. This is in stark contrast to the current position for small claims, where there is very limited costs recovery and the maximum damages award is £5,000.

The small claims track will, hopefully, fill the significant gap between low-value claims and the more typical PCC claims that tend to be higher value or of more fundamental importance to the business concerned.

What IP rights will the IP small claims procedure cover?

The call for evidence suggests that 
low-value copyright disputes are best suited to the small claims track (particularly in instances of direct copying). It also indicates that some unregistered design and trade mark disputes could be resolved under the procedure. Whether the track will be limited to these sorts of claims or whether other rights will effectively, but not expressly, be excluded due to their complexity and cost remains to be seen. The latter approach seems preferable. For instance, in a clear counterfeit case, it is surely better to be able to resolve the dispute quickly and cheaply in relation to all rights via the small claims system rather than having to resolve claims, eg for registered design or passing off, elsewhere. Patent claims are often more complex and are the only IP claims that will almost certainly be expressly excluded from the IP small claims track.

How small are ‘small claims’?

The current damages limit for all small claims is £5,000. However, the Ministry of Justice has consulted on raising the limit to £10,000, £15,000 or £25,000.

What is the appropriate damages limit?

As readers are no doubt aware, a large number of low-value infringements can substantially undermine a business, particularly if it is a start-up or has experienced recent IP-based growth. However, no business wants to spend money on claims where the amount at stake is relatively low, but which take a lot of management time and/or incur disproportionate legal fees (eg where the other side is unrepresented).

Even if an order is granted, enforcing it is not necessarily straightforward, and incurs further costs and expenditure. In short, while the current system does provide a remedy, it comes with a price tag that, in many instances, is significantly greater than the damages award (and the potential benefit to the business in stopping the infringement). Although the situation is not quite that desperate and commercial agreements are often reached, the proposed IP small claims track is an opportunity to improve access to justice.

Rouse’s consultation response recommended that the damages cap be increased to £25,000 on the basis that:

  1. £5,000 is now a very small claim in the context of most businesses;
  2. even a relatively small infringement can inflict a high level of damage on a business, and the current limit may block access to justice for claims that are not low value enough for the small claims track, but are not significant enough for the normal PCC approach; and
  3. with only £5,000 to be gained at the end of proceedings, we fear it would be all too easy for infringers to evade liability simply because it would not be worth the effort and expense of litigation.

It appears likely that the threshold will be raised, but the exact level is hard to predict. If the level remains at £5,000, the small claims track is likely to be confined to all but the most basic claims due to the cost 
of getting professional advice.

Big picture issues

Costs

The current costs provided for on the 
fixed-capped scale are completely unrealistic for dealing with IP claims. Even the most straightforward copyright claim can involve a range of issues relating to ownership, licensing and infringement that, while they may not be complex (and not excluded from the small claims procedure), are nevertheless time consuming to plead properly. If the maximum damages award is £5,000, but only limited costs may be recovered, most victories would be somewhat pyrrhic in nature.

Rouse’s consultation response suggested either:

  1. a different costs scale for IP claims, potentially with a cap of between £5,000 and £10,000; or
  2. that costs are awarded as a fixed percentage (for example 50%) of whatever ends up being the upper 
claim limit, or of the amount awarded.
Enforcement

Enforcement of decisions can pose serious problems when you are dealing with serial counterfeiters and/or small companies. Substantial additional money can be 
spent enforcing the judgment, the costs order, or both. For example, we constantly monitor infringers once undertakings have been signed to ensure continuing compliance. Unfortunately, on many occasions we have identified continued infringement. This is frustrating for the client (and us) and undermines the efficacy of the legal system. A streamlined procedure for enforcing judgments and costs orders, ideally ‘on paper’, without 
the need for a hearing, would be our preferred solution.

Lay representation

Our experience of non-legally represented parties is that it can take considerably longer to reach a settlement and often you are forced to go to court even when they have a very weak case or defence. We suggested that there be a dedicated IP advice service for litigants in person and their lay representatives on the basis that ultimately this will save both court time 
and money.

Procedural issues

The following issues are based on the current approach to small claims. It is unlikely that the IP-specific approach 
will vary significantly from the current 
small claims procedure.

Decision on paper

As is currently the case in the PCC, the small claims track provides discretion to decide the case on the papers. It is probable that most cases will be decided in this way to keep the costs down.

Allocation

At present, all IP claims are automatically allocated to the multi-track. It is proposed that to change this, the claimant will 
need to request that their IP claim is allocated to the small claims track and 
the defendant will need to be content 
with this approach. Only where there 
is a dispute will the court determine jurisdiction.

Remedies

It is likely that the IP small claims track 
will be able to award injunctions in addition to the other final remedies but the call 
for evidence suggests that interim injunctions are ‘often complex and highly contentious matters which would significantly increase costs for litigants’. There would seem to be relatively little need for them if the IP small claims track 
is running expeditiously. Interim remedies are available under the normal PCC and 
High Court procedures.

Conduct of hearings

There is much wider judicial discretion in relation to hearings under the small claims track. Essentially the judge can adopt any method of proceeding that they consider to be fair. Many of the formalities, such as giving evidence on oath, are dispensed 
with and increasingly there are no hearings at all with the decision being made based on the paper.

Location

The only court where the IP small claims track would be heard is the PCC. This Court currently only has one location in London. As it is anticipated that the Court will decide most IP small claims on paper, this may mean that the Court’s location is of less practical significance in the future.

Alternative dispute resolution

One suggested change in the Ministry of Justice’s consultation on the civil justice system was that mediation should be compulsory in all small claims before they can be heard by a judge. While that may be successful in relation to some disputes, to make it compulsory can merely increase the amount of time and cost that it takes to settle a matter. This is a separate consultation process to the one regarding small IP claims.

Conclusion

IP claims are relatively unusual in that what is often at stake is the continuing nature of the infringement itself. The damage can be very hard to quantify but stopping the infringement is essential. The introduction of an efficient and cost-effective process to stop persistent but small scale infringers is a development that should be welcomed by all rights-centred industries.