UPC Security for Costs Raises the Stakes for Asset-Light NPE Claims

A case development dated 22 August 2026 and attributed to the Paris Local Division of the Unified Patent Court (UPC) reports that the court backed a defendant’s request for security for costs in cross-border patent litigation brought by a non-practising entity (NPE). The reported reasoning places greater weight on whether a claimant has accessible assets, substantive operations and a realistic capacity to satisfy an eventual costs award. If the underlying order is published in the terms described, the practical shift is not simply that some NPEs may have to post more cash. Financial enforceability would become an earlier and more consequential part of UPC case management.

As of 25 August 2026, the publicly searchable UPC materials do not appear to contain an official decision matching every detail of the 22 August account, so claims that a late payment would automatically result in dismissal should be treated with caution. What is already supported by published UPC practice is that Rule 158 of the Rules of Procedure allows the court to examine a claimant’s financial position and order security for legal costs. Rule 158.5 also permits procedural consequences where security is not provided as ordered, including a decision by default, but the severity of the response remains a matter for judicial assessment in the circumstances of the case.

Rule 158 is becoming an early-stage risk filter, not just a costs safeguard

The conventional purpose of security for costs is straightforward: to prevent a successful defendant from being left with an unenforceable costs award. UPC practice is giving the mechanism a broader strategic role. Earlier Paris Local Division decisions, including the 2024 ICPillar matter, treated the claimant’s financial position as a material factor and ordered security at a substantial level. More recent Paris proceedings have also addressed timing, the form of acceptable security and the consequences of non-compliance.

That matters particularly in NPE litigation because many patent assertion businesses operate through special-purpose vehicles or entities with limited operating assets. An asset-light structure is not evidence of bad faith, nor should NPE status itself trigger security. The issue is whether the defendant can show a concrete risk that a future costs award will be difficult to recover. Where the claimant has few executable assets, depends heavily on litigation-linked funding, or holds little beyond the asserted patent, the defendant has a stronger basis to seek security before the merits phase becomes expensive. In practical terms, the first serious contest may move from infringement analysis to the claimant’s balance sheet and enforcement profile.

The decisive issue is enforceability, not simply a non-EU address

Existing UPC case law does not support a rule that a claimant incorporated outside the European Union must post security merely because of its location. Other local divisions have stressed that foreign incorporation, including in jurisdictions such as Canada or the United States, does not by itself prove that a costs award would be hard to enforce. The stronger applications are built on evidence: available assets, operating income, corporate purpose, patent ownership, third-party financing, security interests over patent proceeds and the practical route for cross-border enforcement.

For defendants, a Rule 158 request therefore needs more than the label “NPE”. A persuasive filing should connect corporate registry records, public financial information, patent ownership, litigation history and enforcement mechanics to a specific recovery risk. Claimants, for their part, should assume that financial resilience may be tested early. Bank guarantees, escrow arrangements, parent-company support and clear evidence of liquidity can become part of the litigation readiness package rather than an afterthought.

Failure to provide security can be serious, but it is not a mechanical dismissal rule

Rule 158.5 gives the UPC power to issue a decision by default where a claimant fails to provide security as ordered. Published Paris Local Division practice also shows, however, that the court can examine the claimant’s diligence and the practical steps taken to comply. Where funds were set aside within the deadline, clarification was actively sought and a compliant form of security was provided promptly after guidance, the court has not treated the harshest sanction as inevitable.

This distinction is important for both sides. A claimant should not assume that an appeal, an argument over form or a request for clarification automatically suspends the obligation to comply. Delay can quickly become a procedural vulnerability. A defendant, meanwhile, should prepare not only the application for security but also the follow-on request for appropriate consequences if the order is not respected. The court retains discretion; parties should litigate the issue rather than rely on headlines suggesting an automatic outcome.

Security for costs should now sit alongside invalidity and non-infringement strategy

Companies facing an NPE claim before the UPC have traditionally focused on invalidity, non-infringement, injunction exposure and settlement economics. Rule 158 adds another line of defence. Early case assessment should include the claimant’s place of incorporation and group structure, the real ownership and monetisation of the patent, available assets, litigation financing, and the recoverable costs range linked to the value of the action. If those facts point to a genuine enforcement risk, security for costs should be assessed alongside preliminary objections, revocation strategy and evidence preservation.

This will not eliminate NPE litigation. Well-funded patent assertion entities with transparent assets can still use the UPC, and the merits of a valid patent do not disappear because of the claimant’s business model. But for litigation strategies that rely heavily on thin capitalisation, difficult cross-border recovery and settlement pressure created by asymmetric defence costs, Rule 158 can impose a meaningful upfront credibility cost. Businesses operating in Europe should therefore add financial-enforceability analysis to their UPC response playbook from the moment a claim is served.