In many cases of intellectual property (IP) infringement, enterprises can prove themselves as rights holders, prove infringement, and even force the infringing party to stop the act and destroy the infringing goods. But when it comes to asking the infringing party to reimburse the cost of hiring a lawyer, a sum of money that has actually been spent to protect their rights, the result is not so simple.
At the appellate stage, the plaintiff withdrew his claim for the amount of 70 million VND.
Judgment No. 12/2020/KDTM-PT[1] dated 27-5-2020 of the High Court in Ho Chi Minh City is a remarkable case. In this case, the request for payment of 150 million VND of lawyer's fees was ultimately not accepted by the Court. What is worth discussing is not only the amount of 150 million VND, but also the broader question: IP law has allowed the right holder to request the payment of reasonable costs to hire a lawyer, so how should evidence be prepared so that this request is approved when going to court?
A real expense may not be enough
In the above case, the plaintiff claimed a total of 220 million VND, including 70 million VND for material damage and 150 million VND for the cost of hiring a lawyer. At the appellate stage, the plaintiff withdrew his claim for the amount of 70 million VND.
The special feature lies in the way this fee is established and paid. The legal service contract is not signed directly between the plaintiff (Company D) and the law practice organization but in the name of another company – LT Company. LT Company is also the subject of the payment of fees to the law firm. According to the plaintiff's presentation, the plaintiff then refunded the corresponding amount to LT.
The Court did not accept the request for 150 million VND. One of the important bases of this judgment is that the legal service contract is in the name of LT, LT is the payer and the contract does not show the plaintiff's payment obligation. According to the Court's approach, the amount paid by LT is therefore not enough grounds to determine that it is the plaintiff's "actual damage".
From the perspective of evidence, this argument is not without basis. The claimant must prove that his or her own rights and interests are lost. When the contract, invoice and payment document all point to another legal entity, the gap between "costs incurred in the lawsuit" and "costs actually incurred by the plaintiff" becomes a problem that needs to be explained and proven. However, it is here that a legal issue that deserves further discussion arises.
Are attorney's fees necessarily "actual damages"?
IP law has a rather special design for the cost of hiring a lawyer.
Article 204 of the IP Law regulates the principle of determining damage caused by acts of infringement of IP rights. Meanwhile, Clause 3 of Article 205 stipulates that in addition to compensation for damages, the IP right holder has the right to request the Court to compel the infringing organization or individual to pay reasonable expenses to hire a lawyer.
The two words "outside the clause" here need to be analyzed more closely. If attorney's fees are merely a component of material damages under Article 204, the addition of Clause 3 of Article 205 of the law will somewhat lose its own meaning. The structure of the law allows the argument that the right to claim payment of attorney's fees is relatively independent of the claim for ordinary damages. This is also reasonable given the nature of IP disputes.
When IP rights are infringed, the right holder often has to carry out a lot of professional work to protect his or her rights: collecting and preserving evidence, identifying infringement, assessing industrial property, sending a letter requesting an end to the act, working with the management agency, and finally having to file a lawsuit. The cost of a lawyer is therefore not exactly the same as the lost revenue or the value of the lost property. It is a necessary cost arising from the right holder having to use the legal mechanism to fight against infringement.
Therefore, when considering the requirement for lawyer's fees, if you only question whether the amount is "actual damage" under Article 204, there is a risk that it does not fully reflect the separate mechanism in Clause 3 of Article 205. From this perspective, Judgment 12/2020/KDTM-PT raises a question worth thinking about: Should the Court separate the consideration of attorney's fees under Clause 3 of Article 205 from the determination of damages under Article 204?
"Hired a lawyer" is different from "reasonable cost to hire a lawyer"
Clause 3 of Article 205 does not stipulate that the losing party must pay all costs that the right holder has paid to the lawyer. The law uses an important limit: "reasonable costs". This is the point that businesses need to pay special attention to.
A fee may be perfectly legal in the relationship between the client and the law firm, but it is unlikely that the entire fee will be considered reasonable by the Court to transfer the payment obligation to the infringing party.
For example, an enterprise may choose a law firm with a very high fee, employ many lawyers, or request to perform a wider scope of work than is necessary for the lawsuit. That is the freedom of the business to choose services. But when asking others to pay this money, the question is no longer simply "how much the business has paid", but "how much of it is reasonable and necessary to protect the infringed right". Therefore, proving attorney's fees in IP disputes actually has at least "three layers".
Firstly, it must be proven that the costs are actually incurred. Legal service contracts, invoices, remittance documents and corresponding accounting documents are required.
Second, it must be proven that there is a direct connection between the payment and the infringement. If the contract includes many different jobs, the business should be able to determine the fee for the dispute being adjudicated.
Third, the reasonableness of the expenditure must be proved. The scope of the work, the length of time the lawyer performs, the complexity of the case, the volume of documents, and the applicable fees can all become important facts.
Source: Google Images
Who rents, who pays, and who asks for reimbursement?
In business practice, it is not uncommon for a company in the same group or a related unit to sign a contract and pay legal costs on behalf of the right holder. A corporation can concentrate its legal activities at the parent company, a company can sign a lawyer contract for many associated companies, or simply a legal entity pays first and then reallocates internal costs.
In terms of corporate governance, that way of doing things can be completely normal. But when entering the proceedings, it can create a gap in evidence.
In this case, Company D is the right holder and the plaintiff, LT signs a contract with the law firm, LT receives the invoice and LT transfers VND 150 million to the law firm. If it only stops there, the evidence file is proving quite clearly that LT has incurred an expense, but it is unlikely to prove that Company D is the final bearer for this expense.
If D believes that he has reimbursed the LT, it is this reimbursement that must be proven. A strong set of evidence in that case may need to form a continuous sequence: (i) documents showing that LT was assigned or authorized by D to hire a lawyer; the legal services contract between LT and the law firm clearly identifying D's case; (ii) invoices and documents paid by LT to the law firm; (iii) documents establishing the obligation of D to reimburse LT; (iv) documents showing that D actually transferred money to LT; (v) and accounting records showing that this amount is recorded accordingly.
Do not wait until the dispute occurs to complete the evidence
In order to request the infringing party to reimburse the attorney's fees, the design of evidence should begin from the moment of hiring a lawyer. Ideally, the direct right holder is the party that signs the legal service contract and pays directly. In the case that because of the corporate governance mechanism, another legal entity must be named, the contract should clearly state the service provided for the protection of the rights of which subject, in which case, which party bears the final cost, and how the payment or reimbursement mechanism is.
Similarly, the scope of work and service fees should also be separated. A contract that includes "legal advice" with a package fee will be more difficult to prove than a record showing that the lawyer has performed specific tasks that directly serve the handling of infringement.
The application for reimbursement of lawyer fees, the business should answer four questions on its own: Who hired the lawyer? What did the lawyer do for this case? Who actually bears the money? And why is the fee requested reasonable?
In particular, "reasonable" should not be asserted in words alone. Records of the scope of work, timetables of work if any, fees, invoices, payment documents, and results of work can help the Court have a more objective basis for consideration. This preparation has another benefit. Even if the Court considers that not all fees are reasonable, the separation of each item still facilitates consideration of partial acceptance. Conversely, if the entire cost is expressed in a package number that is not dissipative, the risk of the claim being rejected may be higher.
Intellectual property rights are only really valuable when the right holder can effectively protect that right. Therefore, the fact that the law allows the infringing party to pay reasonable expenses to hire a lawyer is not only a matter of compensating for a sum of money spent, but also part of the mechanism to ensure the effective enforcement of IP rights. However, there is still a significant gap from the provisions of the law to the fact that the lawyer's fee is actually accepted by the Court. The judgment analyzed in the article shows that the right to request under Clause 3, Article 205 of the IP Law does not mean that all lawyer fees that have been incurred are automatically refunded. The right holder must still prove that such expenses are directly associated with the protection of the infringed rights, are actually borne by them, and are reasonable in scope and fees.
Lawyer Nguyen Van Phuc
HM&P Law Firm
[1] https://dauedu-my.sharepoint.com/personal/dangnv_mi_dau_edu_vn/_layouts/15/onedrive.aspx?id=%2Fpersonal%2Fdangnv%5Fmi%5Fdau%5Fedu%5Fvn%2FDocuments%2F1%2E0%2E1%2E%20Web%2F3%2ESharefile%2FSo%20huu%20tri%20tue%2FBan%20an%20ve%20tranh%20chap%20so%20huu%20tri%20tue%2FBA%2012%2D2020%2Epdf&parent=%2Fpersonal%2Fdangnv%5Fmi%5Fdau%5Fedu%5Fvn%2FDocuments%2F1%2E0%2E1%2E%20Web%2F3%2ESharefile%2FSo%20huu%20tri%20tue%2FBan%20an%20ve%20tranh%20chap%20so%20huu%20tri%20tue&ga=1, accessed on 30/08/2020.
