Aylo Premium Ltd v. Dish Technologies L.L.C, Order UPC Central Division (Paris Seat), 18 February 2025, Case no. UPC_CFI_198/2024
The Central Division (Paris Seat) (Judge rapporteur Maximilian Hawdicke) recently made an Order in the case of Aylo v. Dish, rejecting a request for security of costs made by Aylo.
In rejecting this request the Court has provided further useful information to parties in respect of what evidence may be required by an applicant requesting security of costs to meet their burden of proof (particularly if the claimant is making the application), and similarly what evidence might support a position that no security needs to be given. In addition, the Court has clarified what information will not be considered by the Court in their decision making. This decision provides much needed information as to what analysis the Court will undertake when determining whether or not to grant security for costs.
Although this decision could be seen to be opening the door for claimants to seek security for costs, the Court has acknowledged that there are good reasons why claimants should not generally be entitled to demand security from defendants, and has stated that strict requirements apply before security can be ordered in favour of a claimant applicant. This should give comfort to defendants that, given then have not chosen to litigate, they won’t be barred from defending themselves on the basis of being unable to provide security.
Background
The Claimant (“Aylo”) has brought a revocation action in the Paris Seat of the Central Division of the UPC against the Defendant (“Dish”) in relation to the patent in issue (EP3 822 805 B1). Dish is also the claimant in a parallel infringement action concerning the German part of the patent-in-suit before the German Regional Court Munich I.
On 14 October 2024, Aylo brought a request for security for legal costs in accordance with R.158 RoP. 5 (which provides that, at the request by “one party” the Court may order “the other party” to provide adequate security for the legal costs and other expenses incurred by the requesting party, which the other party may be liable to bear). This request was referred to a panel by the judge rapporteur (pursuant to R. 331.2 RoP).
In their request Aylo sought an order that Dish provides security for the legal costs and other expenses incurred and/or to be incurred, in the amount of at least EUR 400,000. Aylo also sought a decision by default if Dish failed to provide such security within the time specified by the Court. Dish requested that Aylo’s request for security for costs be dismissed, or in the alternative that a reasonable, lower amount of security be ordered.
Submissions
In seeking security for costs, Aylo argued that Dish had the highest possible risk of insolvency. They made reference to parallel infringement proceedings between the parties in which the Local Division Mannheim had ordered that Dish provide costs security in accordance with R. 158 RoP (see LD Mannheim, order of 4 October 2024, ORD_54886/ 2024). They also referred to Dish’s quarterly report from Q2 2024, which referred to existing substantial outstanding payment obligations and future additional debt as well as to necessary additional capital requirements that will not be available on favorable terms. Aylo also submitted that the Dish group of companies lacks financing for almost EUR 2 billion of debt falling due in the short term, has a total of EUR 20 billion of debt outstanding in the medium term, and that as there are no positive cashflow in the Dish group further losses are to be expected.
Aylo also relied on a number of other points to support their argument of Dish’s high insolvency risk, including published market observations that indicate doubts as to the financial stability of Dish’s parent company (Echostar), that new funds which were given to EchoStar created new debts because of follow up investments, and that a declaration submitted by Dish does not fulfil the requirements of R. 158 RoP, as it is neither a deposit or a bank guarantee.
In response, Dish argued that strict requirements must be set in relation to a claim for security against a defendant, and that they did have the financial means to satisfy a potential claim for reimbursement of costs. In support of this, they argued that Aylo’s arguments were based on an outdated factual situation which were not considered by The Local Division Mannheim, so their decision has no significance to the present application. Dish also submitted that the group to which it belongs had obtained approximately USD 8.256 billion in new funding (and referred to EchoStar’s financial report for the Q3 2024, which states that cash and cash equivalents and market able investment securities totalled USD 2.722 billion as of 30 September 2024). Dish additionally submitted that EchoStar had undertaken to provide Dish with sufficient funds to meet any liabilities within the next 12 months. Therefore, Dish argued there is no basis for ordering security for costs as there is no doubt that Dish will be able to bear any cost reimbursement claims of EUR 400,000.
Dish also noted that its group had paid off the USD 1.983 billion liability that Aylo cited in its request for security, and the group had completed a successful exchange offer that lifted the “going concern” qualification. Last, they noted that Echostar had given a declaration to undertake to reimburse Aylo for its legal costs relating to the proceedings up to the amount of EUR 400,000.
Decision
The Court noted that under R. 158.1 RoP the request to provide security may be made in principle by a claimant, but the burden of proof that a party would be required to provide for security necessary to cover the legal cost lies with the applicant. Due to the asymmetry resulting from Aylo’s voluntary decision to litigate, strict requirements must be applied when it is the claimant requesting security concerning the burden of presentation and proof.
After considering all relevant factors, the Court concluded that Dish was not obliged to provide security, as the evidence submitted was not sufficient to allow for such as assessment. Aylo had not shown to the conviction of the Court that Dish would not be able to pay the litigation costs if it should lose the lawsuit. Crucial to this decision were there facts that the going concern qualification had been lifted, and the formal declaration provided by Echostar to reimburse Aylo for litigation costs. The Court also highlighted the facts that the debts of EchoStar had decreased due to substantial cash inflow, and that Dish’s group of companies had received new funding of more than USD 8 billion, factored into their decision.
The Court additionally held that the statements of an opposing party in US court proceedings cannot be considered, because they may, by their very nature, be one-sided. Similarly, articles made by market analysts cannot be decisive by themselves, as the validity cannot be proven by the Court. Further, it is not within the Court’s competence or responsibility to make predictions about the development of the market, or to second guess business and investment decisions of Defendant.
While the Court held that Dish itself had not demonstrated that it has sufficient funds or provided a sufficient amount of financial information, the declaration of EchoStar undertaking irrevocably to reimburse Aylo for its legal costs was given strong weight. The Court noted it has no reason to doubt the sincere intention behind this declaration and the underlying intent of EchoStar to pay for possible litigation costs, as well its ability to do so. Enforceability by Aylo is not a requirement for this being permissible under R.158 ROP, and this declaration is not by its own means, a security but supports the prognosis that Dish will be able to bear the litigation costs if necessary. The Court allowed this declaration as evidence to assume that the litigation costs will be covered.
In conclusion, since Dish submitted the necessary evidence for its solvency, the Court found there to be no reason to oblige them to pay a security, and rejected Aylo’s request.
The order can be read here.
