UPC Insights: Security for legal costs

On 30 October 2023, the Munich Central Division of the UPC (the Court) issued an order stating that NanoString must provide security to Harvard for legal costs and other expenses (the Security).

In this post we will describe the background to this case and the Court’s assessment of what it will consider when deciding on a request for Security.

Background

NanoString and the President and Fellows of Harvard College (Harvard) are involved in a string of proceedings (with or without 10x Genomics) before the UPC. Among other proceedings, NanoString has initiated a revocation action against patent EP2 794 928 owned by Harvard (the Main Proceedings).

Harvard requested Security in its preliminary objection filed in the Main Proceedings based on two main arguments: the risk that it would be unable to enforce a cost reimbursement order against NanoString, as its headquarters are located in the UK, and the risk that NanoString would be unable to bear the legal expenses and costs at the relevant time due to its financial position.

Rule 158.1 of the UPC Rules of Procedure state that security for legal costs and other expenses may be ordered at any time during the proceedings. However, in this case, the Court decided to hear the request separately from the preliminary objection.

The Court assessed the request for Security based on (i) previous decisions of the UPC local divisions, (ii) the legal situation regarding enforcement of a UPC decision in a non-EU country and (iii) NanoString’s financial situation.

The Court’s assessment

The Court reviewed two previous UPC orders, one from the Helsinki local division dated 20 October 2023 (CFI_214/2023, in which the court had not ordered a security for costs) and one from the Munich local division dated 19 September 2023 (CFI_2/2023, in which the court had found a security for enforcement of a preliminary injunction not to be necessary). Both divisions stressed that

• it was at the UPC court’s discretion to order security for legal costs and other expenses,
• such discretion was not limited to the cases listed in the UPCA (orders to produce evidence, preserve evidence and inspect premises, freezing orders and provisional and protective measures), and
• the financial position of the party against whom security is requested is one of the factors to be taken into account when assessing a request for security.

The aim of ordering security is to protect a party from the situation where the other party’s financial situation raises a legitimate and real concern that a potential cost order may not be recoverable or a cost order ‘may not, or in an unduly burdensome way, be enforceable’.

The Court emphasised the need for proportionality and to ensure a balance between the interests of the party who has not initiated the main proceedings (here the revocation action) and the right of the party that has initiated the main proceedings to an effective remedy.

In view of NanoString’s location and financial position, the Court considered that the request for Security was justified.

As NanoString is UK-based, and the UK was no longer part of the European Union, there was a risk that a cost reimbursement decision would be unenforceable. Indeed, the UK is no longer a party to the Brussels Ibis Regulation or a party to any other international instrument relating to the recognition and enforcement of civil and commercial judgments.

Additionally, the parent group of NanoString stated in its submissions in the Main Proceedings that an injunction would constitute a substantial risk for the Group, and a preliminary injunction had already been issued against NanoString.

NanoString did not provide an independent financial statement from the NanoString Group. The Group had never been profitable, relied on investors and had a long-term debt exceeding the amount of its cash position.

Accordingly, the Court considered that there was a risk that Harvard would be unable to recover its legal costs from NanoString in the Main Proceedings. As Harvard did not provide any information as to the costs incurred so far in the Main Proceedings or an estimate of the costs to be incurred, the Court fixed the Security at €300,000.00.

Analysis

Established case law regarding the provision of a security still has to evolve. Recent decisions on security vary and are not yet coherent.

A request for security must be based on facts and arguments regarding the other party’s financial situation and how that might affect the enforceability or recoverability of legal costs.

It is up to the party requesting the security to advance evidence and arguments justifying its request, which the opposing party may refute.

Proportionality is a criterion that will be taken into account by the UPC divisions.

The financial situation of a party is likely playing the most important role in the question for determining whether a security is ordered.

Whether it is more likely that a party which is not located in the EU will be ordered to provide security, remains to be seen. Specifically, claimants or defendants from the UK will face requests for security, given UK is not a party to an international treaty on the recognition and enforcement of foreign judgments. The fact that a security for enforcement of a PI by a US plaintiff was not ordered by the Munich local division might also be due to the fact of urgency associated with interim relief proceedings. The UPC has a lot of discretion in this context and has found flexible solutions, already. An example is the ex parte PI grant in the MyStromer v. Revolt Zycling case by the Dusseldorf local division (CFI_177/2023), where enforcement was granted subject to the provision of a security, but provisional enforcement as of day one was possible if the security was provided within 10 days from grant of the PI.