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.
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 and determine the matter accordingly under section 213(2).
Process once a request for security is received
On receiving a request for security for costs, the Commissioner will write to the parties and 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 the Patents Act 2013, reasons why they believe they will be able to pay costs.
The requestor will then 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.
How security is to be paid
The order will require the deposit of a sum of money to be held in trust for the party concerned pending issue of an order for costs at the conclusion of the substantive proceeding. The amount required will usually be based on the likely award of costs to be made against that party at the conclusion of the proceeding.
If both parties are represented by professional counsel, the Commissioner’s normal practice is to direct that the security be held in the requestor’s legal counsel’s trust account pending the outcome of the proceeding. Once the proceeding is determined, the requestor’s legal representative will be expected to distribute the security to give effect to the Commissioner’s costs award. Any failure to do so in a timely manner will be deemed a breach of a Commissioner’s direction; it may also give rise to a complaint to the law society.