Security for costs
A party to a patent proceeding who believes the other side is likely to default on any award of costs may request that the Commissioner make an order for security for costs.
The circumstances in which the Commissioner can make an order vary depending on whether the proceeding is being run under the Patents Act 1953 or Patents Act 2013.
Patents Act 1953
The Commissioner is somewhat limited to the circumstances in which an order security for costs under the Patents Act 1953 can be made.
Under section 95(2) the Commissioner may only order security for costs from a party who:
- has been served with a notice of opposition, or
- has made one of the following to the Commissioner:
- an application for revocation
- a request for the grant of a license
- a request for the determination of a dispute as to an invention, or
- has been served with a notice of appeal from a decision of the Commissioner under this Act.
In addition, the Commissioner can only order security of costs if satisfied that the party “neither resides nor carries on business in New Zealand”.
The rationale for this requirement is that it is difficult to seek enforcement of costs awards against a party that does not reside or carry on business in New Zealand, and the costs of seeking to recover costs from an overseas party can sometimes exceed the amount recovered.
If the Commissioner makes an order for security of costs, and the party against whom the order is made defaults on paying security, the Commissioner may treat the proceeding as abandoned under section 95(2).
Patents Act 2013
Under section 213(1) of the Patents Act 2013 the Commissioner may require a party to a proceeding to give security for costs if the Commissioner is satisfied that:
- the party does not reside, and does not carry out business, in New Zealand, or
- there is reason to believe that the party will be unable to pay the costs of the other party if unsuccessful in the proceedings.
The purpose of requiring security for costs is to ensure a party to a proceeding will comply with any award of costs that the Commissioner may order. The rationale for 213(1)(a) is that it can be difficult to enforce costs awards against a party that does not reside or carry on business in New Zealand. The expense of seeking to recover costs from an overseas party can sometimes exceed the amount recovered. Section 213(1)(a) focuses the ability to which costs can be enforced rather than ability for the party to pay.
The Commissioner will take into account the timing of the submission for security of costs when assessing the use of their discretion under s 213(1).
The rationale for 213(1)(b) is that if there is good reason to believe the party might not be able to pay an award of costs, the payment can be secured before more costs are incurred by either party. The Commissioner must be satisfied that the party in question will not be able to pay at the end of the proceeding before an order under 213(1)(b) will be issued under their discretion.
The assumption is that a party will be able to cover the costs. A request for security with no or insufficient evidence will be declined.
The Commissioner will also take into account the timing of the submission for security of costs when assessing whether to make an order under s 213(1). Therefore it is preferable that requests for security for costs are made at the earliest possible opportunity.
Requests for security for costs
Requests to the Commissioner for security for costs must be made through the IPONZ online case management facility on the proceeding case.
Process once a request for security is received
On receiving a request for security for costs, the Commissioner will provide the party from whom security is sought with an opportunity to confirm whether they reside or carry on business in New Zealand or, in the case of a request under section 213(1)(b) of the Patents Act 2013, reasons why they believe they will be able to pay costs.
The requestor may be given an opportunity to respond. The Commissioner will consider the reasons provided by both parties, and will make a determination on whether an order for security for costs is appropriate. The Office will give the party from whom the security is sought one month to confirm the security has been paid.
The amount of security ordered will usually be the total for all the steps the requestor may do under the scale of costs. That is, the maximum that the requestor would be entitled to under the scale should the proceeding progress all the way to a hearing.
See scale of costs for more information.
How security is to be paid
The Commissioner’s order will require the deposit of a sum of money to be held in trust for the requestor pending issue of an order for costs at the conclusion of the substantive proceeding.
If both parties are represented by professional counsel, the Commissioner’s normal practice is to direct that the security be deposited into the trust account of legal counsel representing the party from whom security is required. The money is held in trust for the benefit of the person requesting security for costs in the event an order for costs is made in their favour.
The parties may otherwise reach an arrangement as to security for costs that the requestor accepts.
If the Commissioner orders security of costs, and the party against whom the order is made does not comply, the Commissioner may treat the proceeding as abandoned and determine the matter accordingly under section 213(2). However, the Commissioner also has the discretion to continue the proceeding in some circumstances if security is not paid, for example if the proceeding is at a late stage or the substantive hearings has already been held.