UPC Security for Costs: Economic Substance Over Labels
Three recent UPC decisions are giving claimants, funders and insurers a clearer picture of how the Court will approach security for costs.
The cases concern very different claimants and financial arrangements. But the underlying question is increasingly consistent: does the claimant's actual financial position give rise to a legitimate and real concern that a future costs award may not be recoverable, or may be unduly burdensome to enforce?
In Syntorr v Arthrex, appropriately structured ATE insurance helped remove that concern. In La Siddhi v Athena, SME status did not remove it. Most recently, in Nixu FL IP Protection LLC v Infoblox Inc. and others, the Hamburg Local Division looked beyond legal ownership of a patent portfolio to the security granted over those assets and the claimant's wider financial position.
The developing theme is therefore less about labels such as "funded claimant", "SME" or overseas entity, and more about economic substance.
Nixu: €200,000 security despite rejecting the domicile argument
In Nixu FL IP Protection LLC v Infoblox Inc. and others, UPC_CFI_360/2026, concerning EP 2 005 696, the Hamburg Local Division ordered Nixu to provide €200,000 security for costs on 10 June 2026.
Infoblox argued, among other things, that enforcement of a UPC costs award against Nixu in Florida would be uncertain. The Court rejected that argument. It found no sufficient basis for assuming that a UPC costs decision would not be recognised and enforced in Florida, observing that the public policy, reciprocity and fair trial requirements relied upon reflected principles also familiar in European jurisdictions.
The financial analysis produced a different result.
Nixu had been incorporated in Texas on 26 March 2025 and subsequently had a registered address in Florida. The Court considered its recent establishment, apparent single-purpose nature and lack of credit history as part of the overall assessment.
Public securities filings relied upon in the proceedings showed that Nixu's expenses were being met through ongoing advances and that its assets had been pledged under a Patent Security Agreement. The security extended to its patents and licences and to income, royalties and proceeds associated with them. Nixu itself argued that the provider of the advances was an active and financially capable funder.
The Court also took account of a remaining $2 million balance on the purchase price of the patent portfolio, payable from future proceeds.
Taken together, these factors created a legitimate and real concern over recoverability. Although Nixu remained the legal owner of the portfolio, the Court considered that the comprehensive pledge of its assets and revenue rendered it "basically assetless in an economical sense" and left it dependent upon continued third-party funding which the defendants had no enforceable right to require.
That distinction matters. The decision does not establish that third-party funding itself justifies security. Rather, it demonstrates that the Court may examine the practical effect of a financing and security structure when deciding what assets are genuinely available to meet an adverse costs award.
The amount ordered is also instructive. Infoblox sought €1 million. The Court assessed the combined value of the infringement action and prospective revocation counterclaim at €2.5 million, producing a recoverable costs ceiling of €400,000. Balancing the defendants' interest in recovery against the claimant's right of access to justice, it ordered security of €200,000, half the applicable ceiling.
Syntorr: when insurance changes the financial analysis
Nixu can usefully be read alongside the Court of Appeal's earlier decisions in Syntorr LP v Arthrex Inc. and others, UPC_CoA_889/2025 and UPC_CoA_890/2025, issued on 18 February 2026.
In two parallel proceedings, the judge-rapporteur of the Munich Local Division ordered Syntorr on 11 August 2025 to provide €2 million security in each action. Following panel review under Rule 333 in late September, the orders remained in place. Syntorr provided a bank guarantee and then sought discretionary review by the Court of Appeal.
Syntorr had ATE insurance with a €4 million limit, supported by an anti-avoidance endorsement. The Court of Appeal held that the insurance formed part of Syntorr's financial position and should therefore have been considered when deciding the threshold question of whether there remained a legitimate and real concern over recovery or enforcement of a future costs award.
Importantly, the Court's conclusion was closely tied to the particular terms of the insurance arrangements.
The cover was non-voidable and non-cancellable in respect of Arthrex's covered costs. Its terms were intended to benefit Arthrex directly and provided it with direct enforcement rights through a straightforward claims mechanism. The termination arrangements included a 60-day period during which Arthrex could seek further security or a stay, while covered costs incurred before termination remained protected. The Court also considered the position of the Maltese insurer as an EU-authorised insurer subject to the Solvency II regime.
On those facts, the Court concluded that the insurance removed the relevant concern. It set aside the security orders and ordered the bank guarantee already provided by Syntorr to be released.
The Court therefore did not need to decide the separate question of whether an insurance policy could itself constitute the form of security ordered under Rule 158.1. The insurance had already changed the anterior question: whether an order for security was required at all.
For claimants and their advisers, that is perhaps the most commercially significant aspect of Syntorr. The existence of ATE insurance alone was not the point. The wording, direct enforceability, termination mechanics and standing of the insurer all formed part of the Court's assessment.
TheJudge handled the placement of Syntorr's ATE insurance and anti-avoidance endorsement, working with the claimant and its advisers on the insurance arrangements ultimately considered by the Court of Appeal.
La Siddhi: SME status does not change the underlying test
Between Syntorr and Nixu came the Court of Appeal's decision in La Siddhi Consultancy Limited v Athena Pharmaceutiques SAS and Substipharm, UPC_CoA_48/2026, issued on 1 June 2026.
La Siddhi had been ordered by the Milan Central Division on 13 March 2026 to provide €75,000 security for costs in revocation proceedings. It appealed, arguing among other things that its status as a micro-enterprise had not been properly taken into account.
The Court of Appeal dismissed the appeal.
Neither Article 69(4) UPCA nor Rule 158 provides an exemption for SMEs. SME status can be relevant as one circumstance when determining the appropriate amount of security, but it does not displace the underlying assessment of the claimant's financial position.
The quantum analysis makes the distinction concrete. The applicable ceiling for recoverable costs was €112,000. The first-instance Court reduced that to €75,000, around 60% of the ceiling, having regard to the relative complexity of the proceedings and anticipated legal costs. The Court of Appeal held that this was a reasonable exercise of discretion.
Significantly for the developing line of authority, the Court expressly relied on AorticLab v Emboline and Syntorr v Arthrex when setting out the governing test.
The connection between the three decisions is therefore more than thematic. They form part of the same developing jurisprudence.
One test, different financial positions
In Syntorr, a carefully structured ATE policy and anti-avoidance endorsement materially strengthened the claimant's position because the defendants had a credible and directly enforceable route to recovery.
In La Siddhi, SME status did not itself answer concerns arising from the claimant's financial position.
And in Nixu, legal ownership of a patent portfolio was not sufficient where the practical value of those assets to a costs creditor had been materially affected by security interests, outstanding liabilities and dependence on continued funding.
For litigation funders and funded claimants, Nixu therefore raises an important structuring point. A funder will understandably seek appropriate protection for deployed capital, including security over litigation assets or proceeds. But the effect of that security on the claimant's residual ability to meet an adverse costs award may need to be considered expressly when a UPC funding structure is put together.
Syntorr illustrates the other side of that equation. Properly structured insurance can strengthen the claimant's financial position for Rule 158 purposes, but the Court's analysis also shows that the detail matters. A standard ATE policy should not automatically be assumed to produce the same result.
The practical lesson is to consider funding, funder security, adverse costs exposure and insurance together, ideally before proceedings begin.
A financing structure may provide all of the capital required to pursue a strong patent claim. But if the same structure leaves the claimant unable to demonstrate a credible route for meeting an adverse costs award, the result may be an additional collateral requirement once the litigation is underway.
KEY CONTACTS
James Blick, Director
Bob Knock, Investment Counsel