Belgian flat-rate reimbursement scheme for legal costs scrutinised by the Court of Justice of the European Union

On 28 July 2016, the Court of Justice of the European Union (CJEU) decided that Article 14 of Enforcement Directive 2004/48/EC allows a national flat-rate system for the reimbursement of legal costs, provided that those rates ensure that the costs to be borne by the unsuccessful party are reasonable. Such a system must allow, at the very least, a significant and appropriate part of the reasonable costs incurred by the successful party to be borne by the unsuccessful party. Moreover, Article 14 precludes national rules which state that the costs of a technical adviser which are directly and closely linked to IP infringement proceedings are only reimbursed in the event of a fault committed by the unsuccessful party (Case C-57/15, United Video Properties Inc. v. Telenet NV). 

The question of which party should bear the cost of litigation in an IP dispute was not fully harmonised by Article 14 of the Enforcement Directive, which only provides that reasonable and proportionate legal costs (attorneys’ fees) and other expenses incurred by the successful party should, as a general rule, be borne by the unsuccessful party, unless equity does not allow this. The question is of course what should be considered “reasonable and proportionate”. Belgium has long had a tradition that limits the risk of litigation for the party who ends up losing the case. The unsuccesful party is only required to pay a flat-rate in legal costs (the so-called “procedural indemnity” or “rechtsplegingsvergoeding”¹), which depends on the monetary value of the dispute in question. Currently, the maximum amount of legal costs per instance is fixed at 36.000 EUR for disputes with a monetary value of 1.000.000 EUR and up. Usually, with stakes like these, the legal costs amount to a multiple of the 36.000 EUR cap, leaving the succesful party to bear most of its own legal costs. Conversely, in the Netherlands, for example, it is customary for the unsuccessful party to reimburse the full extent of the other side’s legal costs, which in a complex IP litigation often run up to 200.000 or 300.000 EUR. The question has often been asked in Belgian IP actions whether such a significant difference between EU Member States was acceptable. Until recently, no Belgian court had been found willing to request a preliminary ruling on this point from the CJEU. 

As regards the fees paid to a patent attorney, case law of the Belgian Supreme Court (Hof van Cassatie) had established that the successful party is only entitled to recover costs relating to such a technical adviser if it can be shown that the unsuccessful party was at fault in bringing its action or in continuing the proceedings and that the costs of that adviser are a necessary consequence thereof.2

In a dispute between patentee United Video Properties (UVP) and Telenet, the Commercial Court of Antwerp found in April 2012 that Telenet had not infringed the patent at issue and that, moreover, the patent was invalid. UVP was ordered to pay a procedural indemnity of 11.000 EUR to Telenet, the flat-rate awarded at the time for cases that were deemed unquantifiable in monetary terms. UVP filed a request for appeal but subsequently decided to discontinue the proceedings.

Telenet requested that UVP be ordered to reimburse the actual amount of 185.462,55 EUR it had incurred in attorneys’ fees and 44.400 EUR for assistance by a patent attorney. Telenet argued that the Belgian flat-rate system is contrary to Article 14 of the Enforcement Directive, as this article does not authorise EU Member States to set a reimbursement cap for attorneys’ fees. Telenet also argued that Article 14 does not require the successful party to prove any fault in the unsuccessful party in order to have its other expenses reimbursed.

In January 2015, the Court of Appeal of Antwerp referred two questions to the CJEU, both of which were addressed in the CJEU’s recent judgment of 28 July 2016.

The first question related to the compatibility of the Belgian flat-rate reimbursement of attorneys’ fees with Article 14 Enforcement Directive.

In this regard, the CJEU first pointed out that Article 14 requires Member States to ensure the reimbursement only of ‘reasonable’ legal costs. It follows that legislation providing for a flat-rate system may in principle be justified, provided that it is intended to ensure the reasonableness of the costs to be reimbursed. This may be the case if that legislation is designed to exclude the reimbursement of excessive costs due to unusually high fees agreed between the successful party and its attorney. However, the requirement that the unsuccessful party must bear “reasonable” legal costs cannot justify national legislation that imposes a flat-rate significantly below the average rate actually charged for the services of an attorney in that Member State. Consequently, national legislation which sets forth an absolute limit in respect of costs attached to the assistance of an attorney must ensure, on the one hand, that this limit reflects the reality of the rates charged for the services of an attorney in the field of IP and, on the other hand, that, at the very least, a significant and appropriate part of the reasonable costs actually incurred by the successful party are borne by the unsuccessful party.

Secondly, the CJEU was asked to reflect on the Belgian rules concerning the recoverability of fees charged by a technical adviser.

In this regard, the CJEU had to establish whether the costs of a technical adviser fall within the concept of “other expenses”, which is not defined in Article 14 of the Enforcement Directive.

The CJEU observed that this concept must be interpreted narrowly and that only those costs that are directly and closely related to the judicial proceedings at issue may be considered as “other expenses” in the sense of Article 14. It follows that whether or not the reimbursement of the costs of a technical adviser may be made conditional on a fault committed by the unsuccessful party, depends on the existence of a direct and close link between those costs and the judicial procedure. The CJEU stated that, to the extent that the services of a technical adviser are essential in order for a legal action to uphold an IP right to be usefully brought, the costs linked to the assistance of that technical adviser fall within the concept of “other expenses” and must be reimbursed by the unsuccessful party.

As a result of this judgment, it appears that the Belgian legislation on the reimbursement of legal costs will have to be amended. The flat rates will have to be tested against the realities of IP litigation, which is usually more complex, more specialised and therefore more expensive than other types of litigation. Until the Belgian legislation is amended, successful IP litigants can be expected to refer to this CJEU judgment to claim a higher cost reimbursement than they are currently entitled to under Belgian law.

As to the reimbursement of the fees charged by a technical adviser, it appears that the Belgian Supreme Court has been partially overruled. For fees that are essential to the IP dispute, the successful party does not have to prove that the unsuccessful party committed any fault in order to have these fees reimbursed.

1  See the Royal Decree of 26 October 2007 establishing a scale of standard reimbursements of legal costs mentioned in Article 1022 of the Belgian Judicial Code.

² See Cass. 5 May 2006, C.03.0069.F, www.cass.be and Cass. 2 September 2004, C.01.0186.F, www.cass.be.