The Munich Local Division of the UPC recently issued an order in case UPC CFI 425/2024 demonstrating the use of security for costs to ensure that a party's legal costs are reimbursed without relying on enforcement by national courts. Security for costs enables a party to submit a request for the other party to provide financial funds that would cover the legal costs, and other expenses incurred, by the requesting party. The request for security for costs can be filed at any time during proceedings. At the UPC the potential legal costs recoverable by a party is set by the total value of the proceedings.
In the facts of this case, the Defendants of a pending UPC infringement action based on EP 2787541 requested security for costs from the Patentee. In particular, the Defendants requested that "[t]he Claimant is ordered to provide adequate security within a period to be determined by the Munich Local Division for the costs of the proceedings" and that costs "should be set by considering the maximum of reimbursable fees under the Rules of the UPC based on a value in dispute of 2 million EUR". In support of this action, the Defendant identified that the Patentee has its registered office in the People's Republic of China. The Defendant further asserted that it is not sufficiently certain that a cost decision made by the UPC would be accepted and can be enforced in China.
The Patentee and court agreed that the assertion that a Claimant has its registered office in a non-EU/non-EEA country cannot be decisive for the decision on an order
for security. It was noted that such an approach would be a form of a priori discrimination based on a party's nationality. However, the court did acknowledge that whilst the People's Republic of China has ratified the Hague Service Convention (HSC), a treaty designed to ensure parties involved in litigation proceedings have a reliable means of serving documents to parties operating in another country, the UPC has experienced challenges with the Chinese authorities when serving under the HSC (as we have previously discussed).
The court therefore concluded that "[w]ith regard to a country that fails to fulfil its obligations under the Hague Service Convention, it has to be assumed that an order for reimbursement of costs by the UPC may not be enforceable in this country". Consequently, the court issued an order for 200,000 Euros to be provided as security. This amount corresponds with the maximum reimbursable costs available for the value of the proceedings.
This order demonstrates the UPC is committed to ensuring reliable compensation for the legal costs of parties involved in UPC actions and that the UPC is capable of securing such funds for compensation at any point in proceedings. This provides reassurance for all parties involved that the reimbursement of costs to a winning party, a procedural aspect of the UPC, is prioritised in practical terms.
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