Claimant’s patent portfolio not sufficient to provide security of costs

In a series of Orders dated 17 September 2024 issued by the Court of Appeal (UPC_CoA_217/2024, UPC_CoA_218/2024), the panel of judges awarded security of costs under Rule 158 against the claimant, NST - a non-practicing entity, and found that it was credible that the claimant’s financial situation gave rise to a legitimate and real concern that a possible order for costs may not be recoverable. The CoA order overturned an earlier decision of the Munich Local Division (ORD_12227/2024, 23 April 2024) which had denied the Rule 158 application on the basis that, inter alia, the claimant’s patent portfolio would provide the desired security.

The Court of Appeal evaluated the particulars of the patent portfolio, and stated the Munich LD could not have reasonably taken into account the patent portfolio as a sufficient source of recovery for any cost order. Not only was the price paid for the patent portfolio redacted in the purchase agreement submitted to the court in evidence but the court also observed that the purchase price paid originally could not be indicative of the value of the patents at the end of the proceedings, not least so because of imminent expiry of most of the patents and because a successful invalidity action would additionally reduce the value of the patent in question to zero. Moreover, if the patents were to be seized, this would need to be done on a country by country basis, involving further costs and with a very uncertain return. 

Based on these observations, the Court of Appeal found that a legitimate and real concern that a possible order for costs may not be recoverable by the defendants, despite the existence of the patent portfolio as a “seizable” asset. 

It was further pointed out that the settlement agreements entered into by the claimant in some other cases would not alter any of these considerations. These agreements were insufficient indication of the (future) value of the patent portfolio and failing any details on the content of the agreements, which were not provided, the claimant’s mere statement that the licence fees received would be sufficient to cover the legal costs could not be relied on. This is a welcome decision from the Court of Appeal – it provides certainty to defendants that have genuine concerns about the ability of an unsuccessful potential impecunious claimant to make good and satisfy any cost award made against it.