Extrajudicial costs are “other expenses” under article 14 of the Enforcement Directive and national courts must be able to take account of the specifics of each case when determining the legal costs

C-559/20

Koch Media v FU

Enforcement: Legal costs

28 Apr 2022

The matter at hand

Koch Media owns the intellectual property rights to a videogame in Germany. FU, a natural person, infringed the rights of Koch Media by making a copy of the videogame available on a filesharing platform. After receiving a formal notice, FU agreed to cease the infringement but declined payment of Koch Media’s full legal costs, including extrajudicial costs. In following proceedings, the Amtsgericht Saarbrucken (Regional Court of Saarbrücken) awarded Koch Media an amount in damages, but only partial payment of its extrajudicial costs. In appeal, Koch Media claimed, amongst others, payment of its full extrajudicial costs. The Landgericht Saarbrucken (Higher Regional court of Saarbrucken), the referring court, established that German law capped the extrajudicial costs under the circumstance that the infringing party is a natural person that operates commercially. However, the referring court observed that the capping of extrajudicial costs may be in disregard of Article 14 of the Enforcement DirectiveDirective 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights.

In essence, the first question of the referring court is whether extrajudicial costs fall under the scope of Article 14 of the Enforcement DirectiveDirective 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights and if not, if these extrajudicial costs fall within the concept of ‘damages’ as provided in Article 13 of the Enforcement DirectiveDirective 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights. The second question is whether Article 14 of the Enforcement DirectiveDirective 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights precludes national legislation that provides for capped lump sum calculations of other costs based on the value of the claim. The referring court notes in this respect that the national courts have the freedom to deviate from these lump sum calculations if this is considered unfair based on the specific features of the case.

The judgment of the ECJ

With regard to the first question, the ECJ recalls that in United Video Properties (C-57/15) it established that (only) costs that are directly and closely related to the relevant proceedings fall under ‘other expenses’, within the meaning of Article 14 of the Enforcement DirectiveDirective 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights (paragraph 41). The ECJ furthermore explains that “although the extrajudicial costs cannot be regarded as 'legal costs' within the meaning of Article 14, since at this stage no proceedings are pending before a court, the Enforcement DirectiveDirective 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights does not preclude those costs from being regarded as 'other expenses' within the meaning of that provision” (paragraph 43). The ECJ underlines the direct relation between a formal notice and subsequent proceedings, and concludes that extrajudicial costs therefore constitute ‘other expenses’ under Article 14 of the Enforcement DirectiveDirective 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights: “since the sending of a formal notice constitutes a process necessary to ensure the enforcement of intellectual property rights and is intended to avoid - or even replace - subsequent court proceedings” (paragraph 45).

In respect of the second question, the ECJ cites United Video Properties (C-57/15) once again and emphasizes that the maintaining of ‘flat rates’ is permissible, as long as those rates are reasonable and proportionate, meaning that Member States must ensure that the flat rates are neither too high, nor “too low” (paragraph 55). It lies within the essence of Article 3(2) of the Enforcement DirectiveDirective 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights that the successful party retrieves “at least [a] significant and appropriate” portion of its extrajudicial cost (paragraph 52).

The ECJ, however, underlines that Article 14 of the Enforcement DirectiveDirective 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights, read in conjunction with Recital 17 and Article 3(1) of the Enforcement DirectiveDirective 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights, entails that Member States “must, in any event, enable the court which has to rule on the costs of proceedings to take account of the specific features of each case” (paragraph 60). The ECJ therefore concludes that Article 14 of the Enforcement DirectiveDirective 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights does not preclude national legislation that provides for lump sum calculations, under the condition that the court can deviate from these standard calculations if considered reasonable under the specific circumstances.

Commentary

We refer to our commentary regarding Novatext v University of Heidelberg (C-531/20) of the same date. In this matter, the ECJ emphasised that, however Member States may apply flat rates and/or standardised tariffs, it remains obligatory that Member States ensure that national courts are able to make their own (substantive) assessment of whether awarding legal costs and/or extrajudicial expenses are reasonable in each specific case. Together with United Video Properties (C-57/15) and Novatext v University of Heidelberg (C-531/20) the ECJ established a consistent line of case law regarding Article 14 of the Enforcement DirectiveDirective 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights, that essentially enumerates that, regardless of the application of flat rates, (i) a significant part of the legal costs and other expenses of the successful party must be reimbursed, but that (ii) those costs must be deemed reasonable and proportionate after substantive consideration and that (iii) national courts may deviate from the awarding of legal costs and/or other expenses if equity demands it.