Letter from AmeriKat: Urban Outfitters v BCBG - An 'exceptional case'

Last Monday the AmeriKat attended the London Citizens' Greener Planet Action Team and Oragnico's free screening of the Oscar-nominated documentary, Food Inc., as part of their initial launch of their noble new program on food waste, Plan Zheroes (Note: there is a logo competition for anyone interested!). The initiative is to provide and increase access to food that would otherwise be thrown away to the thousands of Londoners (some of whom may even may be your next door neighbors) suffering from food poverty - an initiative she urges many to get involved in. The AmeriKat suggests that if you have not seen Food, Inc., you must. Although intellectual property and media lawyers come off the worse for wear (i.e., Monsanto's patent wars and food libel laws), it is an eye-opening film that Patrick Holden (director of the Soil Association), told the audience he had seen 7 times. The AmeriKat, although not a general fan of chickens when alive given her Kat tendencies, is now after watching the film taking an extra 30 minutes in Waitrose determining where the chickens came from before they ended up in her food bowl. (picture, top left - the closest the AmeriKat will ever be to being chicken)

"Do you have no sense of decency, sir?" - BCBG attorneys ask on award of costs

Someone who was also determining where something came from, this time in the field of costs, was Judge Michael Baylson of the US District Court of Pennsylvania who two weeks ago awarded the youthful lifestyle store, Urban Outfitters, $5,000 in sanctions in addition to $1.34 million in lawyers' fees in the company's trade mark suit against BCBG Max Azria. In making the award, the Judge held that BCBG's conduct during trial dragged the litigation out for far too long. In 2006, Urban Outfitters alleged that BCBG had infringed its mark "FREE PEOPLE" by their use of "TRUE PEOPLE". The FREE PEOPLE mark had been used by Urban Outfitters since 1970. In 2007, the district court granted Urban Outfitters a permanent injunction against BCBG. A district appeals court then upheld the lower court's finding last year and dismissed BCBG's attempt to cancel Outfitter's mark.

The case was remanded back to the lower court for the judge to determine whether this was an 'exceptional case' where attorney's fees should be awarded. Readers may know, that in the US the general principle is that each party bears its own costs. However, section 1117(a)(3) of the Lanham Act provides an exception that states that the "court in exceptional cases may award reasonable attorney fees to the prevailing party." 'Exceptional cases' is not defined in the statute but the various US Circuits have developed tests of when a case is exceptional, usually with benchmarks such as the defendant's wilful infringement coupled with pre-trial or trial bad faith conduct, blatant wilful trade mark infringement or fraudulent litigation conduct.

With the defendant's liability already decided and the case remanded back, the case turned to one only of costs, with Urban Outfitters requesting sanctions following their attorneys Drinker Biddle alleging that BCBG's key witnesses made misrepresentations to the court, referring to "BCBG's chicanery", and alleging general "litigation misconduct" by the other side. Judge Baylson attempted to find a half-way approach by finding one BCBG executive witness was not credible, but that this was not the fault of BCBG's lawyers. Because of this limited finding of misconduct, he therefore awarded Urban Outfitters half of its fees and costs in the substantive litigation but did not award any costs for the appeal. The judge wrote:

"The advocacy of counsel in this case on both sides was at a high level, both in terms of legal work and vocal exuberance. The record will disclose numerous verbal attacks by the lawyers on each other as well as on their parties' positions....It may be fairly said that some of the conduct described above constitutes 'litigation misconduct,' [but] the court does not find that any of defendants' trial counsel acted improperly or unethically."

But BCBG lawyers protested some more arguing that Drinker Biddle's fees should be disallowed due to their own misconduct. Drinker then asked Judge Baylson to sanction BCBG for making this protest in bad faith with an award of its fees for the post-remand stage of the litigation. If you are like the AmeriKat and are a fan of amusing legal filings, then she suggests you read this 15-page gem from BCBG's attorneys, Pepper Hamilton. Not only does it start from the famous quote from Joseph Welch to Senator McCarthy it then starts to list the various Amendments that Dinker Biddle are alleged to be disregarding in their applications for costs - 5th, 14th and wait for it, the 1st! An entertaining read although it may be, the Judge was not amused and criticized the response for it not actually responding to Drinker's fee request.

Surely having enough of the dramatic antics of counsel, over a week ago Judge Baylson ordered that that Drinker's full attorney fee request be awarded plus the additional $5,000 for the most recent costs round. He stated:

"The court finds that the non-responsive and previously rejected arguments made again by defendants [have] extended this litigation unduly, caused the court to spend time on irrelevant matters, and warrant an additional sanction against defendants."

But it may not be over. According to Forbes, M. Kelly Tillery of Pepper Hamilton, BCBG's law firm stated:

“With respect, the judge just got it wrong. It happens. That's why there is a court of appeals.”

This case is a good lesson that in a trade mark battle the fun does not always stop at the determination of the substantive legal merits. With the somewhat increasing trend of courts awarding the other side's costs in 'exceptional cases' (both trade mark and patent alike), litigation misconduct and defendant's applications made in bad faith are to be avoided at all costs. That, and try not to annoy the judge too much with litigation antics otherwise you may find yourself in BCBG's position and see your bill for the other side's costs double.

Other news update: For weekly readers, the AmeriKat wrote about the biggest US news of the week on Thursday in the Viacom and Premier League v Google/Youtube litigation here, which saw Judge Stanton award summary judgment in favor of Google. The AmeriKat is also expecting Bilski tomorrow (but don't hold your breath).

Prospective costs order; term extension - Gowers speaks

How much will it cost? asks Mr Justice Arnold

The IPKat once again thanks Lisa Chiarelli, this time for bringing his attention to the FT’s coverage of the decision by Mr Justice Arnold to require Allen & Overy to declare what its projected costs are in the battle between RIM and Visto.

The decision covers the second case between RIM and Visto. In the first case, A & O racked up over £5m in costs for a five day trial.

Mr Justice Arnold called the current costs system “inadequate and unsatisfactory” and called for a more “proactive” approach to controlling costs.

The IPKat (who would dearly love to see a copy of the decision) says this sounds jolly sensible. It’s fair that the losing party should have to pay costs, but if costs are allowed to spiral out of control then more defendants will be forced to settle, not because they necessarily have a bad case, but rather because of a fear of handing over a blank cheque for costs.

STOP PRESS: the full text of the decision is now available from Bailii here.

Also in the FT

Andrew Gowers’ response to the UK’s volte-face on the copyright term for sound recordings.

It's those repackagers again...

Yet another installment in Boehringer Ingelheim v Swingward and friends (and it's not the last one either). The Court of Appeal's judgment in February adjourned the case, pending the outcome of an Austrian reference to the ECJ concerning repackaging. The parties were left at liberty to apply for an order for costs to date and now they have done so.

The Court of Appeal made the order. Jacob LJ, delivering the leading judgment of the court, said:

"Unfortunately the result of the Austrian reference is still some way off. It is too far away for it to be right for us simply to await that result. We think it right to make a ruling now, but one that allows for the possibility (which we think unlikely) that the reference would make a difference to the result".

Just to add to the difficulties, Dowelhurst has gone into administration, so the Court had to work on the assumption that any costs paid to it would not be returned, even if the Austrian reference meant that a different apportionment was appropriate. Thus Dowelhurst was granted 80% of its costs, with the other 20% payable if the Austrian reference makes no difference to the judgment.
The IPKat says that there's a bigger problem here. On controversial subjects, there's often an ECJ reference waiting around the corner and there's a limbo period where it's known that the judgment is coming, but often it's a very long time off. Part of doing justice is doing it efficiently and with due speed, yet there is the real risk that the law will 'change' in the light of a pending reference. What are the courts to do in this situation? Proceeding isn't satisfactory, but neither is waiting.

BMI/ISP agreement; costs in the PCC

What have the BMI and ISPs agreed?

Yesterday the IPKat (in slightly sleepy state) was greeted with the news that British Music Rights (BMI) and the 6 leading UK ISPs (Tiscali, Virgin Media, BT, Orange, Carphone Warehouse and Sky) had reached an agreement on tackling illegal downloaders of copyright content. The IPKat thought it was a little odd that no one really seemed to be saying much on what the parties were actually agreeing to do, and then he went about his business.

It seems that the IPKat wasn't the only one who was confused. Today PC Pro reports that Carphone Warehouse has said that it will neither cut off their customers' internet access, nor will it divulge customer details without a court order. Instead, a Carphone Warehouse spokesman said:

"What we have agreed to do is to write to our customers and advise them there's been an alleged infringement. We're very clear that we don't know if that's the case or not, we've just been told there has been and we want to advise them of that".

The IPKat is rather suspicious of voluntary codes of practice like this one. It's one thing if an industry is agreeing to self-regulate. It's quite another if an industry is agreeing to self-regulate for the benefit of another industry, but the people who are really bearing the brunt of this are the ultimate consumers. The IPKat also wonders, what's in it for the ISPs here?


The desk drawer worth £100,000

Over to a costs cases in the Patents County Court. Anglia Autoflow Ltd v Wrightfield Ltd was a copyright case concerning ownership of a bespoke piece of software. The case was eventually abandoned by the claimant after a DVD came to light which showed early development stages of the defendant's software which indicated that it had been independently created. The said DVD was found by an employee of the defendant well into the litigation in his desk while he was looking for something else.

HHJ Fysh QC SC found that the defendant had failed to make a reasonable search since 'his material was where one would expect it to be; it was not hidden away in some unexpected place. Moreover the file suffix ('.cxp') is the suffix for an Omron programme and the earlier version could I think, have been found in response to a search under 'Okeford', 'Faccenda', 'Easyload' or '.cxp'. The file name itself, I would have thought, would have been indicative of potentially relevant material for disclosure.' Additionally, the defendant had been rather 'cavalier' in preparing for the litigation, and had made (possibly by inadvertence) a number of misleading statements. Both of these factors justified a reduction in costs payable by the claimant of 20% (a claimant that abandons a case would normally be liable for 100%).

The thing that struck the IPKat though was the quantum of costs involved. Although the program cost the claimant £10k, the costs incurred in this case were almost £1million. The IPKat (perhaps naively) thought that the PCC was meant to be a less costly venue for IP litigation.

Nine man years for a five-day trial

You just can't keep a good litigant out of court, it seems, and RIM is just one of those enthusiasts. Research in Motion UK Ltd v Visto Corporation [2008] EWHC 335 (Pat) is a decision of Mr Justice Floyd, in the Patents Court of England and Wales. Yesterday he had to give a ruling on the costs incurred by one of RIM's earlier excursions.

Right: "There's gold in tham thar bills ..."

On 28 February 2008 Floyd J held that, overall, RIM was victorious as it had succeeded in revoking Visto's patent for lack of inventive step and because it related to a computer program as such (see earlier IPKat post here). If the patent had been valid, though, Visto "won" because RIM would have been held to have infringed it. And Visto claimed two more victories in respect of patents that RIM conceded to be invalid. Subsequently in relation to costs, the issue of proportionality arose. RIM had spent almost £5.2 million while Visto spent a mere £1 million.
There was no dispute that RIM's costs should be reduced by a percentage to reflect Visto's ultimately unsuccessful success. But how much should Visto get?

Floyd J ruled as follows:

* It was uncontroversial that the it was the court's job to prevent the recovery of unnecessary and unreasonable costs. On that basis a court could deploy the notion of proportionality in deciding whether a party should recover costs of a particular issue;
* a trial judge who saw a figure for costs before the process of assessment was embarked on by a costs judge was often in a good position to express a view as to whether the bill represented a disproportionate expenditure -- and he was certainly entitled to express that view for the benefit of the costs judge;

* in this case the sums expended by RIM were disproportionate to what was at stake and there was no justification for costs rising above what would commonly be expected for an action typical of the one before the court. This being so, RIM's conduct in relation to the issue of infringement deserved to be marked by an award of costs in Visto's favour;

* in real terms Visto should pay 66% of RIM's total assessed costs on all three patents, and RIM should pay Visto 51% of its total assessed costs expended on all three patents.

The IPKat was fascinated by the gory details: the judge observed that Allen & Overy, for RIM, notched up nine man-years' worth of work for the five-day trial, with one senior associate spending 2,291 billable hours in pursuit of a successful outcome (Taylor Wessing represented the other side). A&O's side of the story is worth contemplating though: for the firm Nicola Dagg pointed out that her instructions were to leave no reasonable stone unturned; the legal costs incurred were also a tiny proportion of the value of RIM's business, which Visto's patent put under threat. Merpel says, it's cheap compared with the £182 million representing the cost of the British government's Bloody Sunday inquiry, or even the mere £10 million cost to the British taxpayer of the recent inquiry into the death of Diana, former Princess of Wales.

See the coverage of this case by Intellectual Asset Management, The Lawyer and Financial Times.

Picking up the bill: the cost of copyright litigation

The IPKat credits LexisNexis Butterworths' subscription-only service for digging up Experience Hendrix LLC and another v Times Newspapers Ltd [2008] EWHC 458 (Ch), a decision given yesterday on costs in copyright infringement litigation from Mr Justice Warren of the Chancery Division, England and Wales.

Right: Jimi Hendrix's memorial -- a tribute from The Stones?

Following protracted proceedings, Experience Hendrix succeeded in obtaining summary judgment in a copyright infringement action against Times Newspapers (you can read the IPKat's account of the earlier proceedings here). Once the main issues had been sorted out, the court ordered delivery up of infringing material, disclosure in the terms of Island Records Ltd v Tring International (to give Hendrix Experience sufficient information to enable it to choose between damages and an account of profits) and costs that were to be paid on an indemnity basis. Subsequently, an offer under the Civil Procedure Rules Part 36 was revisited; this was a cash offer that Times Newspapers had made before the issue of liability was ruled on, together with an undertaking to destroy the master copy and other copies of any recordings within its possession and a promise not to exploit the copies of any recordings it held. In these proceedings Times Newspapers argued that, in light of the Pt 36 offer which they made, the court should not have awarded indemnity costs but, instead, should have ordered that the question of costs be reserved.

Warren J was not disposed to accept Times Newspapers' contention. He sumarised the linear nature of most copyright litigation as follows: where the claimant as copyright owner wanted monetary compensation, the first stage was to try to establish infringement. If the claimant won, Island Records-style disclosure would be ordered so that he could elect between his remedies of damages or an account of profits. Until that information had been disclosed, the successful claimant was not in a position to know which to choose. Once that information was given and the claimant opted for damages or an account of profits, the next step was to work out how much the quantum of damages or an account should be.

Having said all this, the judge then addressed the key issue of costs. In this case, he said, there was no reason for interfering with the nature of the costs order. Even taking into account the Pt 36 offer, Hendrix Experience would still have had to go to the expense of securing a favourable judgment on the issue of liability in order to proceed to the next stage, being the damages/profits enquiry.

The IPKat assumes that the sums in question must have been pretty large in order to make it worth litigating over them like this. Merpel says, I wonder if this is all changed by IP Enforcement Directive 2004/48, which looks as though the successful claimant in infringement proceedings can ask for both compensatory damages and an account of profits.

Cat's first guitar lesson here
Cat guitarists here and here

UPDATE (15 March): The judgment is now available on BAILII here.