12 November 2005

So you want to sue Somebody?


Why?

That is the first question to ask. The question may seem impertinent immediately after someone has harmed or appeared to harm you but, that is exactly the right time to ask it. That is because the longer proceedings continue, the harder and more difficult they will be to escape.

There are really only two good reasons to sue.

- to recover reparation that would not otherwise be recoverable; and
- to prevent imminent and irreparable harm.
No other reason is good enough.

Making trouble for its own sake or seeking revenge will be regarded as unnecessary and may well be penalized. Litigation (going to court) is always expensive but if a court believes litigation to have been unnecessary, the costs for the party at fault could be swingeing.

Factors to Consider

Even if you have good reason to sue, you must decide whether the money you are likely to recover, or the harm that you are likely to prevent, is worth the time, risk and cost of litigation.

That is a complex judgment and often depends on uncertainties.

First, you have to estimate your own costs and your chances of getting any of them back.

Next, you have to estimate how much the other side is worth and how easy it will be to recover money from an opponent who can be expected to do all he or she can to avoid paying you. You should ask yourself whether a judgment be any practical use to you at the end of the day. If you get an injunction (an order by the court to do or refrain from doing something on pain of punishment) against the other side, could it find a way around your order? If the other side is ordered to pay you money, what financial state will it be in when the litigation comes to an end in several years time?

Closely connected to that question is what are your prospects of success given your knowledge of the facts and the unknowns? Can you afford, and do you have the will, to litigate over several years? Does your opponent have the will and resources to litigate over that time? Equally important, is it possible that the other side underestimates your determination and resources? Similarly, are you sure that you do not underestimate the other side’s?

What is involved

Litigation can take many years, and cost tens of thousands of pounds (or euro, dollars or yen), to resolve. Parliament, the courts and practitioners are taking steps to reduce costs and delays, but it will always take time and money to read, copy and analyse documents, trace and interview witnesses, prepare court documents, present one’s own evidence, test the other side’s and argue the merits.

A Two-Stage Procedure

IP (intellectual property) cases in which money is claimed generally proceed in two phases in England and Wales. In the first phase, the court considers whether the claimant (the person bringing the claim) has a valid IP right (IPR) that has been infringed. That is sometimes called “the trial on liability”. It can take anything from a few months to 2 years depending on the complexity of the case and the number of other cases waiting to be heard by the same court. The second phase is the “account” or “inquiry” where the court decides how much (if anything) the defendant (the person who is sued) owed the claimant.

The First Phase

If the court does find that the claimant has a good claim, it may order the defendant to stop infringing the claimant’s IPR at once, to surrender any goods that infringe those IPR and any equipment used to make those goods and to pay the claimant’s costs so far. If the court finds that the IPR claimed by the claimant to be invalid or that they have not been infringed it will dismiss the claim and order the claimant to pay the defendant’s costs.

Sometimes, a defendant makes a claim against the claimant known as a “counterclaim”. A counterclaim that occurs frequently in IP cases is revocation of a patent or a declaration that a trade mark or design registration or other IPR is not valid. If the court agrees with the defendant, the claimant may also lose the IPR upon which the action was fought or be required to amend it.

The Second Phase

If, on the other hand, the court finds the IPR to be valid and to have been infringed, the court proceeds to an inquiry as to the damages (compensation) that that the defendant owes to the claimant, or an account of the profits that the defendant has gained from his wrongdoing. The claimant can chose one remedy or the other but not both. Normally, it will chose whichever it believes likely to yield more money. An account or an inquiry can also last up to two years and may be even more expensive than the trial on liability if forensic accountants or other experts are instructed.

Interim Injunctions

If an IPR owner believes that it can’t afford to wait for the court to determine whether its rights are valid and infringed, it can ask the court to grant an interim injunction, that is to say, an order enforceable on pain of punishment to do or refrain from doing something for the interval between the issue of the claim and judgment on the trial on liability.

Many litigants regard an interim injunction application as a short cut to victory and, in many cases it is. That is because an application for such an order can be nearly as expensive and time consuming as preparing for the trial and the losing party either runs out of money or simply loses heart. However, that is not how the remedy is supposed to work. The court is required to consider how much the claimant will lose in the long run from continuing infringement by the defendant if the claimant wins the case, how much the defendant will suffer if the claimant loses but the defendant is prevented from doing for a time something that proves to have been lawful, and then decide which of the alternative courses of action is least likely to do injustice. If it thinks that the claimant is unlikely to win or that it is likely to recover adequate compensation from the defendant in the end of the case, it will refuse an interim injunction. If it believes that the claimant could win and that, if it does, it would be unlikely to recover adequate compensation from the defendant for the losses that it might sustain up to trial it will consider injuncting (restraining) the defendant until trial. However, it will do so only if the claimant promises to compensate the defendant for any loss or damage that it may suffer from the injunction if subsequent facts show that the injunction should never have been granted.

Search Orders and Freezing Injunctions

There are several special types of interim injunctions that are available where there is evidence that a defendant would destroy, remove or hide records damaging to its case that would otherwise be available to the court or remove from the UK or otherwise dispose of money or assets against which would otherwise be available to a successful claimant.

One of those special injunctions is called a “search order” (formerly known in England as, and still called in other places, an “Anton Piller order”). This is an order requiring a person in charge of an office, factory, warehouse, vehicle or other property to admit an independent solicitor appointed by the court (“a supervising solicitor”) plus one or more solicitors instructed by the claimant accompanied perhaps by a computer or other expert to search the premises and computers for files or other evidence that may be relevant to the litigation and to allow that evidence to be copied, photographed or otherwise made available to the court.

The other special order is nowadays called a “freezing injunction” in England and Wales but was previously known as a “Mareva injunction” and is still known by that term in other countries. This is an order not to remove, hide or otherwise dispose of assets that could be used to satisfy a judgment. It is directed not only to the defendant but also to his bankers, stockbrokers or other financial advisors.

It goes without saying that both search orders and freezing injunctions have to be made in the absence of the defendant. Because both remedies are highly intrusive they are subject to many safeguards. Applicants for such relief can be made only to the High Court or to a special judge of the Central London Court. All evidence in support of such application has to be made in a sworn statement known as an “affidavit”. Such affidavit has to disclose not only facts that are helpful to the application but also those known to or reasonably ascertainable by the claimant that are not. The supervising solicitor has to have experience of search orders and be completely independent of the parties. Usually, he or she is an experienced litigation solicitor in a well known and hence expensive law firm. There are extensive restrictions on when, where and how the order can be carried out. The supervising solicitor is required to report to the court and the defendant has to be given an opportunity to challenge the order. All of this greatly adds to the cost of the litigation and should be considered only as a last resort.

Other Interim Orders
Applications for interim injunctions are not the only contested proceedings that could take place in the run up to trial. For instance, if the claimant is a limited company that may not be able to afford to pay the defendant’s costs at the end of a trial on liability, the defendant may ask the court to order the claimant to deposit into an escrow account held by the court a sum of money or give some other security for the defendant’s costs. If it is unable to give such security within the prescribed time, the court may stop the action in its tracks. Parties to an action are required to disclose all documents that are material to the case but sometimes disputes arise as to whether that has been done. Orders an such matters as interim injunctions, security for costs and disclosure of documents are known as “interim” or, occasionally, “interlocutory orders” to distinguish them from “final orders” which are those given after a full trial.

Appeals

Either side can appeal to the Court of Appeal from any interim or final order and from there to the House of Lords. Should a point of EC law arise there may be a reference to the European Court of Justice in Luxembourg. There is also the possibility of an application to the European Court of Human Rights if either side is denied rights under the European Convention on Human Rights.

Costs

These will depend on the length and complexity of the action, the court in which it proceeds and the hourly rates of the lawyers and experts involved. It is rare for an action that is fought all the way to cost less than £100,000 for each side. Often the costs rise to over a million. Even an application for an interim injunction could cost over £10,000 apiece and an application fro a search order or freezing injunction very much more.

Costs will vary greatly depending on location, experience and overheads. An experienced litigator in a City practice could charge many hundreds of pounds an hour while that of an assistant in a suburban or country practice could be a quarter or even a third of that. The same variation applies to counsel. An intellectual property specialist could charge over £350 an hour while an experienced general chancery or commercial practitioner in Leeds or Manchester could be less than a third as much.

It has to be remembered that the country solicitor or provincial counsel will lack the experience of the specialist and that there will be times when he or she will spend several times as long as (and hence charge more than) the specialist and still get it wrong. Conversely, not every IP case is so complicated that it needs a London specialist.

Whatever is spent on lawyers and experts often pales into insignificance compared to the diversion of management time and resources from running a business to conducting litigation. This opportunity cost will vary from case to case and from company to company but a good rule of thumb is that for every penny spent on lawyers another 3p has to be added to a litigant’s costs in terms of disruption, extra expense and lost opportunity.

Alternatives to Litigation in England and Wales

Sometimes there are alternatives. it may be possible to rely on a collecting society or other trade association. Some intellectual property infringements are also criminal offences. Occasionally, disputes can be resolved through arbitration, mediation or other ADR (alternative dispute resolution) procedures. If a corresponding patent or other IPR has been infringed in some other country, it may be cheaper or less risky to sue elsewhere.

1 comment:

saleem said...

For those that are determined to pursue legal action it it may be worth mentioning that there are alternative funding arrangements that can be made available through third party funding companies. Companies such as Capital Litigation Funding will effectively fund viable legal actions in return for a share of the proceeds, which can alleviate some of the risks involved in civil litigation.