Collective enforcement and Class Actions

Introduction

This is the page that I have created to accompany my slot on the Intellectual Property Litigation and Dispute Resolution Conference organised by CLT and held on 8 October 2007. My thanks to Jeremy Philips of IPKat, who's chairing the event, for suggesting me as a speaker and to CLT for inviting me along.

Download conference_brochure.pdf

Links

• EU Injunctions Directive Webpage. Directive 98/27/EC of the European Parliament and Council of 19 May 1998 on injunctions for the protection of consumer interests. Lots of useful links to related items.
• EU Webpage for Consumer Policy Strategy and Programmes
• EU Webpage about Actions for Damages for breach of the EC antitrust rules
• HMCS Webpage about Group Litigation Orders
• Civil Procedure Rules Part 19 Webpage dealing with representative actions and Group Litigation Orders(including link to related Practice Direction), Part 3 (case management powers) and for costs relating to GLOs, Part 48.6A
• The Specified Body (Consumer Claims) Order 2005 and The Stop Now Orders (E.C. Directive) Regulations 2001 (now replaced by Part 8 of the Enterprise Act 2002) and bodies designated by the Secretary of State
• Section 19 of the Enterprise Act 2002 (creates a new section 47B of the Competition Act 1998)
• The Which? webpage about its football shirts campaign
• OFT Webpage about enforcement of consumer law
• Speech to the Law Society's European Group by Philip Collins, Chairman, Office of Fair Trading
• OFT consultation on private action in completion law. This page lists consultation responses plus link to the consultation document.
• The Unfair Terms in Consumer Contracts Regulations 1999
• DTI consultation on Representative actions in consumer protection cases
• Criminal Law Act 1967
• R (on the application of Factortame and others) v Secretary of State for Transport, Environment and the Regions (No 2), and Arkin v Borchard and ors and article in the Law Society Gazette 18 August 2005
• Law Society's Multi-Party Action Information Service
• Railtrack Private Shareholders Action Group
• Part 11 of the Companies Act 2006 - derivative claims by members
• Directive 2004/48/EC on the enforcement of intellectual property rights
•  UK Patent Office consultation document on representative actions (PDF) and press release
• UK Patent Office consultation on implementing the IP enforcement directive (PDF)
• The Intellectual Property (Enforcement, etc.) Regulations 2006
• Spirit Drinks Regulation 1576/89
• Chocosuisse Union des Fabricants Suisses de Chocolat and others v Cadbury Ltd
• Submission on behalf of Comité Interprofessionnel Du Vin De Champagne (CIVC) in response to consultation on the mplementation of the Directive on the Enforcement of Intellectual Property Rights (2004/48/EC)
• Commission Regulation (EC) No 1768/95 of 24 July 1995 implementing rules on the agricultural exemption provided for in Article 14 (3) of Council Regulation (EC) No 2100/94 on Community plant variety rights (PDF) with amendments by Regulation 2605/98 (PDF)
• CPR part 63 and the corresponding practice direction.

Talk

Background

Many international businesses are increasingly paying attention to the risks posed by multi-party (or "class actions" or "collective actions") cases in Europe. Many of these businesses are US-based or on the receiving end of claims issued in the US.

Against this type of background, this concern should not be surprising. Given developments over the past few years, many corporate counsel will be worrying about the impact of some of the following:

• More European law firms and "claims farmers" advertising and seeking out claimants (see UK TV/Cinema adverts for Injury Lawyers 4 U);
• Publicity surrounding the possible move of US "plaintiff bar" law firms into Europe. See item from LegalWeek "US firms prepare for European class actions" on 25 June 2007 or "US class action star targets UK" from The Times on 11 March 2007 about the US plaintiff firm Cohen, Milstein, Hausfeld & Toll PLLC;
• Changes and proposals for changes to the relevant law (see the Consumer Policy Strategy and Green Paper on damages actions for breach of EC antitrust rules)
• Large mass claimant cases such as the Royal Dutch Shell case, the collapse of the Italian food group Parmalat or the cases arising from the Buncefield storage facility explosion in the UK;
• The representative action being brought by Which?, the Consumer Association, against JJB Sports.

In social terms, consumerism in Europe is still on the rise (both in terms of materialism and consumers being more aware of their legal rights) as is the Government and EU regulation of businesses. The changes in legislation that we have seen, and the calls for changes currently being made, are not surprising in these circumstances.

The cases that have made the press have been spanned a range of legal fields, including:

• Claims by investors against directors, bankers, auditors and other parties;
• Product liability claims;
• Anti-competitive behaviours;
• Actions brought by representative parties on behalf of consumers.

But, is this all so bad? Is full-blown, US litigation just around the corner? Of course, not. Don't forget that in the US, damages are awarded by juries and are often punitive in nature, and when it comes to costs, contingency fee arrangements are allowed and generally there are no costs penalties for losing a case. US class-action cases also generally define a class of plaintiffs, and individuals have to choose to "opt-out", whereas most European cases are "opt-in" and claimants have to take a positive action to be involved (such as the Which? -v- JJB sports case).

Traditionally, there has always been much greater regulation of lawyers in Europe than in the US and this is reflected in the fact that fewer than 25% of European countries allow any contingency-type arrangements for lawyers.

Also, only about 30% of European countries have any form of mechanism for class-actions at present.

However, whilst these factors might give some comfort, it always helps to lessen the fear by learning more about the processes and systems that might apply to class actions.

In the time that I've got available today, I can't give you a summary of the position throughout Europe. All I can do is give you an overview of the position in the UK, and in England & Wales in particular.

What I'm going to do is offer a very brief review of the recent historical position, then look at the general litigation regime and lastly look at some specific regimes. I'm going to then wrap up by looking at how class or representative actions might apply to IP and try and draw some conclusions.

Historical use of collective actions

It has always been possible for multiple parties to act as joint claimants and bring a case against a common defendant. As a relatively recent example, let's have a look at the Railtrack Private Shareholders Action Group that was formed in October 2001 after Railtrack PLC went into administration. The group was very well organised, had about 50,000 members and raised over £3m in funds (that's only about £60 each). The case went to trial and the group lost. It had to pay the Government's fees, which were capped at £2.03m and there was a residue left too small to distribute so a small charitable donation was made.

Another example might be some of the the Lloyd's litigation that took place in the 1990s.

The Court has the general case management power to consolidate cases under CPR part 3.1(2)(g).

Options under the CPR

The Civil Procedure Rules include a part specifically applicable to class or collective actions. It is part 19 and easy to miss because the title of the part is "Addition & substitution of parties". However, sections II and III provide for two types of action: representative parties and Group Litigation Orders. There is also a practice direction dealing with group litigation.

Representative actions
Turning first then to representative actions. CPR 19.6 says:

"19.6 (1) Where more than one person has the same interest in a claim -
(a) the claim may be begun; or
(b) the court may order that the claim be continued,
by or against one or more of the persons who have the same interest as representatives of any other persons who have that interest."

CPR part 19.7 also provides that the Court can allow a party to represent persons who:

• are unborn;
• cannot be found;
• cannot easily be
  ascertained; or
• are a class of persons who have the same interest in a claim

Whilst the scope of members of the action can be very wide, the test linking parties together is that of "the same interest".

Group Litigation Orders
The GLO is a case management tool as described in the definition provisions of CPR 19.10:

"19.10 A Group Litigation Order ("GLO") means an order made under rule 19.11 to provide for the case management of claims which give rise to common or related issues of fact or law (the "GLO issues")"

If granted, a GLO will deal with the issues of:

• Establishing a group register;
• Identify the common issues that will group claims; and
• Appoint the Court that will manage the claims on the register

The powers set out under GLOs are, of course, in addition to the Court's general case management powers under CPR part 3. It is worth pointing out that whilst GLOs might obviously apply to multiple claimants, but can also apply just as readily to cases with multiple defendants.

The Practice Direction is detailed and helpful. It makes clear that before applying for a GLO the parties ought to:

• Contact the Law Society's Multi Party Action Information Service in order to obtain information about other cases giving rise to the proposed GLO issues (the practice direction makes it clear that copies of all GLOs must go to this service and to the Senior Master of the QB Division);
• Consider forming a solicitor's group and select a lead firm;
• Consider whether consolidation or a representative action would be more appropriate.

Although it is possible that the Court may make a GLO of its own motion (subject to consent from the Lord Chief Justice in the QBD or the Vice-Chancellor of the ChD), it is probably unlikely in practice.

Some important points to note about GLO's:

• The "commonality" test is a little less stringent than representative actions, being "common or related issues" rather than the "same interest";
• A party must have already started proceedings before it is possible to apply for a GLO;
• The system is one that requires a party to positively join as compared to the US class action where a class of persons is defined and people are "in" by default and have to positively choose to not be involved;
• In the event that a group is unsuccessful, each party has to pay their own costs, and is severally liable to proportion of the common costs as well as what they have to pay the other party.

So, you may be wondering to yourself: "how many GLOs has the Court made then?". Well, it is very easy to find out from the HMCS website. As at 24 September 2007, there were 63 GLOs since October 2000, broken down as shown in the chart.

Call me a cynic, but this isn't a trend that suggests a massive up-take of Group Litigation Orders.

Other regimes

There are a number of specific regimes that apply for certain types of action. Examples include:

• Unfair Terms in Consumer Contracts Regulations 1999. This allows for representative bodies to take up an issue with the OFT. Note that this does not address damages but is essentially aimed at unfair practices;
• Shareholder's right to take action for a director's negligence, default, breach of trust or breach of duty under the Companies Act 2006. The provisions of part 11 of the Act come into force on 1 October 2007. Although the provisions require the Court's consent, it is likely that this will be an area that the US-style plaintiff firms may focus upon;
• Damages for breach of EC antitrust rules. There are proposals on the cards - the Chairman of the Office of Fair Trading gave an interesting talk on this earlier in the summer and there is a consultation paper on the subject;
• The Enterprise Act 2002 brought in a number of changes, in particular the provisions of Part 8 and section 19's amendments to the Competition Act 1998. In effect, certain organisations now have the power to bring actions on behalf of consumers before the Competition Appeal Tribunal. The first case of this kind is the Which? -v- JJB Sports case;
• Certain aspects of EU plant variety rights may be enforced by "individual holders, collectively by several holders or by an organization of holders which is established in the Community at Community, national, regional or local level. An organization of holders may act only for its members, and only for those thereof which have given the respective mandate in writing to the organization".

Other barriers to mass claims in the UK

From what I have already said, and from what any English or Welsh litigator knows, there are a number of barriers to class actions in this jurisdiction. It's worth summing them up here:

• Case numbers are low and, whatever their form, they require some form of positive action by claimants to take part;
• Costs are still a big issue for claimants. They may be an even bigger issue in group cases where a losing claimant's costs in a group action are likely to be more than in a single action;
• Damages in this jurisdiction are generally about recovery of loss, not penalising defendants;
• Procedures are changing, but slowly. Uptake has been limited so far.

Of course, on top of this, whilst conditional fee arrangements are commonplace in personal injury or product liability cases, they are much less so with other types of cases. The funding of cases still presents a real barrier to many actions. Whilst the tort and offence of champerty were abolished by the Criminal Law Act 1967, an agreement to fund litigation in return for a share of the proceeds may well be unenforceable, particularly where the funder tries to control the litigation. This is an area where we can expect to see things changing over the coming years and the nature of the Conditional Fee arrangement is likely to be expanded.

How might this all apply to Intellectual Property?

There are a number of issues that might arise in the case of IP cases, but the first question is what type of case might we be talking about? According to the Patent Office's consultation on the subject, this will be:

"an action undertaken by a representative or representative organisation on behalf of a group intellectual property...rights holders who may, or may not be individually named in a situation where an individual would have a direct cause of action"

The consultation document was published on 26 September 2007 with the deadline for comments closing on18 December 2007.

The IPO consulted on this specific point because of the responses it received to the earlier consultation on the implementation of the IP enforcement directive. Strangely, the IPO hasn't published those responses so we can't tell what they were getting at.

I have spoken to the officer in the IP Strategy section of the IPO who tells me that there about 16 responses on the representative actions consultation and that there are still discussions going on with the judiciary and he's not yet finalised his report.

Similarly, the IPO doesn't seem to have published the responses to the consultation on representative actions.

At a meeting of the Policy Interests Group on 20 February 2007, the Patent Office said that:

"The Patent Office is in the process of drafting a report which needs to be discussed with IP judges and gain ministerial approval before the report is published"

There's nothing further on the IPO's website to suggest what happened to this report. I've spoken to the IPO but gleaned nothing further as yet.

What the IPO has said is that several representative bodies responded saying that they should be able to take passing-off actions on behalf of their members. The Scottish Whiskey Association also wanted, for example, the right to pursue breaches of the Spirit Drinks Regulation 1576/89.

There are a number of cases that touch on the issues. For example:

• Chocosuisse Union des Fabricants Suisses de Chocolat and others v Cadbury Ltd
• Various cases involving Consorzio del Prosciutto and the Scotch Whisky Association

In the Scotch Whisky Association -v- JD Vintners Ltd case, the Vice-Chancellor said:

"I can, however, see considerable reasons why a trade association such as the Scotch Whisky Association should be permitted to sue in a representative capacity on behalf of its members and to seek injunctions to restrain any breaches that may be adversely affecting the interests of its members. I can see no reason why a trade association, on the other hand, should assume in its own right and claim damages in its own right for breaches of a Regulation that adversely affects the interests of its members"

And, after quoting that paragraph, Chadwick LJ, in Chocosuisse, said:

"...it would be convenient if a trade association were permitted to sue in a representative capacity on behalf of its members"

But, he went on to add:

"...I find it impossible to reach the conclusion that that is permitted under the language of Ord.15, r.12(1) in circumstances where, as will usually be the case, the trade association either has no interest of its own capable of founding a cause of action; or, if it has any interest of its own, that is not the same interest as that interest of its members. The remedy lies in an alteration to the Rules of Court. It does not lie in bending those Rules to allow a representative action in circumstances which, as drawn, they were not intended to cover"

Whilst we don't have RSC Order 15 any more, the idea of "same interest" is the same sort of language that we now find in CPR part 19.6 - representative actions. Whilst the provisions of GLOs use less restrictive wording, GLOs are, by their nature, not the same as representative actions.

So, what are the options that the IPO think might work? They see four:

• No change;
• Provide for representative action in relevant IPR legislation with a prior permission stage;
• Provide for representative action in relevant IPR legislation with a court approved list of representative bodies; or
• Provide for representative action in relevant IPR legislation with provision for the court to dismiss the action if the judge considers it appropriate.

The last option is the one that the IPO prefers because it believes it satisfies the need with minimum costs and implementation issues. The IPO also believes that the mechanism should apply to passing off and all statutory IP rights. In particular, it refers to the Practice Direction to CPR part 63, which listed the type of cases that must be brought in the Chancery Division, the Patents County Court or limited County Courts where there is also a Chancery District Registry. This list does not include confidential information cases.

Trends?

It's safe to say that things are happening. In general terms, there is a move towards greater implementation for class actions and representative actions across Europe and this is likely to increase. The spotlight is on how this applies to IP and we're likely to see some changes. However, it may take several years yet.