Post-Brexit: UK plaintiffs must provide cost security for proceedings in Germany

Last year, long lorry jams made it clear to everyone what consequences Brexit will have for crossing the border to mainland Europe. Far less known is the hurdle which UK companies must overcome when they want to enforce or invalidate patents in Germany after Brexit. Since the beginning of 2021, UK plaintiffs must provide security for the costs of the proceedings in infringement and nullity cases before German courts and the German Patent and Trademark Office.

Obligation to provide security for legal costs

Under German law, the costs of legal proceedings are usually borne by the defeated party. This means that unsuccessful plaintiffs must reimburse defendants for certain costs and expenses, including attorney fees up to the statutory fee amount under the German Lawyers' Compensation Act (Rechtsanwaltsvergütungsgesetz). In patent cases, usually the statutory fees of supporting patent attorney are also recoverable.

To safeguard potential reimbursement claims against foreign plaintiffs, the German law of civil procedure contains a provision according to which the defendant can request plaintiffs outside the European Economic Area to provide a cost security before they can sue in German courts.

In patent cases, this provision applies both to actions for patent infringement and to nullity actions against German patents, European Patents validated in Germany and German utility models.

Upon request by the defendant, the court determines the amount of the probable legal costs (usually for two or three instances) and orders the plaintiff to provide security (either by depositing the amount with the court depository or by posting a bond). Based on a value in dispute of EUR 1.000.000 in a patent case, the security would be in the ballpark of EUR 60.000-120.000. In utility model cancellation proceedings before the German Patent and Trademark Office, values are usually lower. If the defendant wins the case and is awarded costs, it can access the deposited amount/bond without having to go through a costly enforcement procedure abroad.

The risk for the defendant of being stuck with recoverable costs exists in particular if the plaintiff is domiciled in a state that does not recognise German court judgments, or at least not without further ado, or in which enforcement of the legal costs to be reimbursed encounters legal difficulties.

[In the context of Brexit, the question arose whether this now applies to companies seated in the United Kingdom. As long as the UK was still a member of the EU or was treated as such during the transitional period, Regulation (EU) No. 1215/2012 (Brussels I Regulation) allowed for the recognition and enforcement of judgments from other Member States in UK. After the end of the transitional phase, this is no longer the case.]

UK plaintiffs no longer benefit from preferential treatment of EU/EEA member states and exceptions to the security obligation

From the UK perspective, it may appear odd that after Brexit, the UK should suddenly fall on a level with states without a functioning legal system. Fact is, however, that with its withdrawal from the EU and without a membership in the EEA, the security provision in sec. 110 (1) of the German Code of Civil Procedure literally applies to the UK.

Although German law provides for exceptions from the security obligation (e.g. in case of certain international agreements), none of the exceptions applies to the UK. In its decision dated 15 March 2021 (case no. 3 Ni 20/20 (EP)), the German Federal Patent reviewed a long list of potentially pertinent agreements (l.c. margin no. 5):

The Hague Convention on Civil Procedure (HZPÜ) of 1 March 1954 […], which in Art. 17 provides for an exemption from the obligation to provide security for legal costs, has not entered into force in relation to Great Britain for lack of ratification.

The Anglo-German Agreement on Legal Relations of 20 March 1928 […] is only applicable to parties to a lawsuit with their seat in Germany […].

The European Convention on Establishment of 13 December 1955 […] also applies in relation to Great Britain […] but provides for an exemption from the requirement to furnish security pursuant to Art. 9, 30 only for natural persons, but not for companies […].

The Trade and Cooperation Agreement between the European Union and the United Kingdom of Great Britain and Northern Ireland of 31 December 2020, which is directly applicable in the Member States, i.e. also in Germany, pursuant to Article 216(2) TFEU, but which is currently only provisionally applicable, does provide in Art. IP.6(2) for equal treatment of nationals with regard to the availability, acquisition, scope, maintenance and enforcement of intellectual property rights, but - irrespective of the question whether the provision, which is only provisionally applicable, could be used for this purpose at all - this is generally not sufficient according to settled case-law […] to exempt the provision of security for costs of proceedings pursuant to section 110 (2) no. 1 of the German Code of Civil Procedure.

Other exemptions within the meaning of section 110 (2) no. 1 of the Code of Civil Procedure do not exist.

Consequently, the German Federal Patent Court ordered the plaintiff UK company to provide cost security. Other German courts including the Federal Court of Justice and the German Patent and Trademark Office have established a respective decision practice, since.

Exception for natural persons with British nationality

As an exception from the general security requirement, the German Federal Patent Court mentioned that according to Art. 9 (1) of the European Convention on Establishment of 13 December 1955, no security may be imposed on nationals of the states that have ratified the Convention. Brexit had no effect on this agreement and both Germany and the United Kingdom are contracting states. This means that natural persons with British nationality are still exempted from the security requirement.

No special treatment for pending cases

For UK companies planning to initiate proceedings in Germany, the security requirement is pertinent.

But what about pending cases? Could it be possible that proceedings which may already run for years are suddenly interrupted? According to the German Federal Patent Court and the German Federal Court of Justice the answer is: Yes, that is possible. Especially the decision dated 15 March 2021 (case no. 3 Ni 20/20 (EP)), was rendered in a case filed in 2020, i.e. before the expiry of the transitional period.

But is this correct? Art. 67 (2) (a) of the Withdrawal Agreement between the United Kingdom and the EU provides that the Brussels I Regulation continues to apply to the recognition and enforcement of judgments given in legal proceedings instituted before the expiry of the transitional period. This may indicate that cost reimbursement orders which are usually made within the judgement might still be enforced as far as the proceedings were pending before the expiry of the transitional period. According to a recent decision of the Frankfurt Higher Regional Court (dated 9 September 2021, case no. 11 U 84/18), the ongoing application of the Brussels I Regulation does not preclude the application of the cost security provision in sec. 110 of the German Code of Civil Procedure. Therefore, there is no special treatment for pending cases.

UK companies should review their litigation strategy for options to avoid providing cost security

From a practical point of view in patent cases, the main take-away is that UK plaintiffs must provide cost security when they initiate infringement or nullity/cancellation actions before German courts and/or the German Patent and Trademark Office.

UK plaintiffs should therefore review their litigation strategy in Germany. Especially multinational groups may have options to avoid the need for providing cost security. In many cases, it may be possible to furnish group companies with a seat in the EEA with proper standing to sue for infringement in Germany. In nullity/cancellation cases, any legal or natural person (group companies, suppliers/customers, or natural persons with British nationality which are exempted from cost security provision under the European Convention on Establishment) can bring an action. Various further options may be available.

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