Value of Litigation Estimates Cannot Be Understated, Denying Public Fisc Its Due.
Finally, as we wish our readers a Happy Memorial Day break (and our deep tribute to our troops and past veterans either living or deceased/their families), an interesting news tidbit drew our interest to the title of a recent decision by the Dusseldorf Appeals Court.
Apparently, this German appellate court–which is the leading German patent infringement appeals court–issued a decision with the unorthodox title, “Thou shalt not lie.” This title arose out of litigants’ obligations to disclose the value of the litigation in good faith. In a concept unique to Germany, “value of litigation” is the plaintiff’s interest in the claims asserted (example: compensatory damages plus future injunctive relief), with plaintiff getting the first opportunity to propose the value (something which must be done in good faith) and with defendant being able to object–but with the trial court deciding the ultimate value based on its own discretion.
The importance of this “value of litigation” principle is that it is tethered to the statutory attorney’s fees and statutory court fees that can be awarded. In first-time patent infringement proceedings, statutory attorney’s fees are about 1.5% of the value of litigation, while statutory court fees (seemingly first payable by plaintiff but reimbursable by the losing party to the public fisc) are about 1% of the same value. Contingency fees are allowable in only the rarest of cases, and it is an ethical violation for German attorneys to attempt undercutting of statutory fees.
What apparently was developing in some patent infringement cases was tantamount to a “subtle conspiracy” by plaintiff and defendant where the value of litigation estimate was intentionally understated (and not challenged by the defense) to avoid a large upfront payment of statutory court fees. There was also another motive behind this understating: German lawyers are increasingly resorting to billing cases by the hour, encouraging law firms to set cheap basic fees (based on a low value of litigation) but push up the hours billed on the cases and staff cases more intensively than with streamlined staffing more closely tied to realistic value of the litigation assessments.
These practices inspired the “Thou shalt not lie” decision by the German appeals court. The court allowed the winning party to readjust the value of litigation estimates after a decision on the merits, which could mean that the losing party bears much more in statutory costs (way beyond litigation budgets based on the low value of litigation estimates). The thinking behind the decision was to encourage the parties to make realistic assessments upfront so as to avoid back-end surprises. Also, defrauding the public fisc carries criminal and ethical repercussions for parties and their attorneys.
We thank Gottfried Schull of Cohausz & Florack for this tidbit; his entire article on the subject can be obtained by going to a May 25, 2011 post in the International Report section of IAM Magazine.
Above: Charlton Heston searches for early precedent for Second Amendment.