Security for Costs and the Timing of Litigation Insurance at the CoA
The Court of Appeal confirms that claimants relying on litigation insurance to avoid security for costs must secure it before the first instance order. Unaccepted FRAND bank guarantees also fail to negate cost recovery risks.
The Unified Patent Court has confirmed that a party seeking to avoid an order for security for costs by relying on litigation insurance must secure that coverage before the first instance court issues its order, rather than offering it as an alternative on appeal.
The security for costs dispute
In UPC-CoA-67/2026, Advanced Standard Communication LLC (ASC) filed an infringement action against Xiaomi at the Munich Local Division concerning EP 3 016 464. Xiaomi responded with a FRAND antitrust defence, a counterclaim for revocation, and a request for security for costs.
The judge-rapporteur ordered ASC to provide security within eight weeks. After the Munich Local Division panel rejected ASC's application for review without granting leave to appeal, ASC escalated the matter to the Court of Appeal. ASC filed a request for discretionary review under Rule 220.3 RoP, asking the appellate body to set aside the order or, alternatively, to order security only if ASC failed to provide proof of litigation insurance. To halt the impending eight-week deadline, ASC simultaneously filed an application for suspensive effect under Rule 223 RoP.
Jurisdiction over suspensive effect
The strict deadline forced the Court of Appeal to move quickly. With the time limit for providing security expiring on 22 May 2026, Standing judge Peter Blok decided the application on 19 May without waiting for Xiaomi's comments, dismissing the defendants' request for a time extension (reasons 8).
The order clarifies a neat procedural mechanism regarding who handles urgent stays during discretionary reviews. The standing judge noted that under Rule 220.4 RoP, a case pending a request for discretionary review is assigned to the standing judge. Consequently, the standing judge possesses the authority to decide the accompanying application for suspensive effect (reasons 15). Furthermore, the imminent expiry of the deadline was interpreted as an application in cases of extreme urgency under Rule 223.4 RoP.
The manifest error threshold
To succeed in a discretionary review, an applicant must demonstrate that the impugned order is manifestly erroneous and raises a fundamental question of law whose review is necessary to ensure consistent application of the Rules of Procedure (reasons 10).
ASC argued that the Munich Local Division erred in finding a risk of cost recovery, pointing to a licence offer Xiaomi had submitted alongside a bank guarantee for payments under that offered licence. The standing judge was unpersuaded. Because ASC had not accepted the licence offer, the conditions under which the bank would render payment were not met (reasons 13). The conclusion that a risk of cost recovery remained was therefore not manifestly erroneous.
Timing of litigation insurance
ASC's alternative request, that security be ordered unless it provides proof of litigation insurance, met a similar fate. The standing judge upheld the Local Division's finding that if ASC had wanted to address Xiaomi's concerns about cost recovery by purchasing such insurance, it could and should have done so prior to the impugned order (reasons 14). The panel explicitly rejected the notion that the opportunity to secure insurance only arose as a result of prior Court of Appeal case law.
Because the request for discretionary review was rejected, the application for suspensive effect became devoid of purpose and was similarly dismissed (reasons 16).
Practical implications
This order establishes a strict temporal requirement for plaintiffs attempting to use litigation insurance to defeat a security for costs request. Practitioners cannot hold litigation insurance in reserve as an appellate fallback. If a defendant raises substantiated concerns regarding cost recovery, the claimant must secure and present proof of litigation insurance during the first instance proceedings, before the judge-rapporteur issues an order.
Furthermore, the decision clarifies that unaccepted FRAND licence offers, even when backed by bank guarantees, do not automatically extinguish a defendant's risk of unrecoverable costs. Unless the conditions for the bank guarantee are actually triggered, which typically requires acceptance of the licence, the financial risk remains, and an order for security for costs is entirely appropriate.
Sources
Further Reading
Articles related to the topics covered above.
Judicial Silence and the Discretionary Review of Value Determinations
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Discretionary Review and the Limits of Appellate Micromanagement at the UPC
The Court of Appeal clarifies that discretionary review under Rule 220.3 RoP cannot be used to force a local division to formally dismiss claims when the underlying jurisdictional question has already been resolved.
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The Court of Appeal confirms that a lower court's erroneous citation of appeal rules does not excuse a party who recognizes the error. An appeal filed without the required leave was rejected as entirely inadmissible.