For the half-year to 30 June 2014, the IPKat's regular team is supplemented by contributions from guest bloggers Alberto Bellan, Darren Meale and Nadia Zegze.

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Wednesday, 3 July 2013

No more "nonsense on Stolts" or damages for infringing an invalid patent

Now it's time to party!
Should an IP owner be able to secure damages for infringement of a right that was invalid, or which at least should not have been granted in the form which was said to have been infringed? In March 2004, commenting on Coflexip v Stolt, this Kat wrote:
"In a judgment which towers over the paltry offerings of the majority, Lord Justice Neuberger’s dissent provides a long and detailed critique of the issues and comes down forcefully against “the offensiveness of the notion of Stolt being liable for, and Coflexip being entitled to, tens of millions of pounds for infringement of a patent which is now shown to be invalid, with retrospective effect”. This case will surely go to the House of Lords, where the IPKat’s money is on Neuberger LJ’s analysis being preferred to that of the majority. "
This Kat was wrong -- the case did not go to the House of Lords. But now, nine years later and with Lord Neuberger now at the helm of the revitalised and rebranded House of Lords -- the UK Supreme Court -- justice was finally done as the Supreme Court ruled that the old case law would haunt us no more. The case in question is Virgin Atlantic Airway Ltd v Zodiac Seats UK Ltd [2013] UKSC 46handed down half an hour ago. If you haven't time to read this masterpiece, the Supreme Court's handy press release is here.

Avoiding the temptation to write a triumphalist blog, this Kat can nonetheless gratify his instincts by posting some fairly triumphalist words from Katfriend Gordon Harris (Wragge & Co, acting on behalf of the successful appellants.  Writes Gordon:
“In this case, Virgin Atlantic Airways Limited wishes to recover damages exceeding £49,000,000 for the infringement of a European Patent which does not exist in the form said to have been infringed.” 
With these words Lord Sumption begins the systematic demolition of an edifice first constructed in 1908 in Poulton v Adjustable Cover and Boiler Block Co, and subsequently extended in Coflexip v Stolt (2004), Unilin v Berry (2007) and in this case, Virgin v Zodiac (2009). 
The final outcome is evident from the tone of those opening words. What is slightly less easy to anticipate is the breadth and import of the judgment to follow. 
What has become known as the Unilin principle can be encapsulated in the operation of the doctrine of res judicata to preserve and protect final judgments finding patent infringement and validity, even if the patent in question is subsequently revoked or amended by another forum. 
The Unilin principle accepts that an injunction must fall away, but sees nothing unusual or unjust in requiring the alleged infringer to have to pay potentially substantial damages even after the patent has been revoked or amended. 
Businessmen want certainty”, said Lord Justice Jacob in this case [True -- businessmen want certainty, but not if it's "nonsense on stilts" (or "Stolts", as the previous case law was)]. As the legendary barrister Sir Sydney Kentridge QC said in the application for leave to appeal to the Supreme Court, in any given case only about fifty per cent of the businessmen really do! 
The early signs of weakness in the post-Poulton structure were evident from the dissenting judgment of Lord Justice Neuberger, as he then was, in the Coflexip case. He identified that Cause of Action Estoppel was not necessarily an absolute bar to further consideration by the courts. That might be the case in relation to points actually decided on an earlier occasion, but what about new and previously unforeseeable events? Lord Justice Neuberger thought there were different categories of Cause of Action Estoppel and they were not all as inflexible as the traditional rule might suggest. 
The supposed effect of the Poulton line of authority was that, once final judgment was given on infringement and validity, the cause of action merged with the judgment, and the right to damages was unassailable. Even the subsequent amendment or revocation of the patent could not diminish the right of the victor to his spoils. 
Lord Sumption takes the view that this line of authority was flawed from the outset. He dismisses the Poulton case as a decision contained in 
an extempore judgment delivered on a Friday afternoon after an argument in which no authority was cited on the ambit of the law of res judicata other than the Duchess of Kingston’s case (1776)”. 
Whether or not it is a general rule of law that judgments delivered on a Friday afternoon are to be given less weight, Lord Sumption certainly believes that Poulton was conceived in error. 
Where the Court of Appeal went wrong in Poulton, and in all the subsequent cases, was in its failure properly to consider the nature and effect of the subsequent amendment or revocation of the patent. 
The effect was that it was as if the patent in its original form had never existed. The nature of the decision was that it was a new issue – one which clearly could not have been considered in the judgment for infringement because it had not happened. Further, its effect is both prospective and retrospective, so there is no logic in the distinction between an injunction and damages – both have to fall away when the patent is subsequently amended or revoked. 
In short, there was nothing in the principles underlying the law of res judicata to prevent the alleged infringer using the “new fact” of the amendment or revocation of the patent to defend a claim for damages arising from the previously unassailable judgment for infringement and the subsequent order for an inquiry as to damages. 
Was there any good public policy reason to support the continued effect of the Unilin principle? Not according to Lord Sumption – in fact, quite the opposite. The policy behind res judicata is to avoid a litigant being vexed twice or more with the same issue. However, the post 1977 patent regime in Europe confers concurrent jurisdiction on the national courts and the European Patent Office as regards questions of validity. As Lord Sumption pithily puts it: 
“It can hardly be said that the vexation inherent in there being two perfectly proper proceedings concurrently is made more tolerable by ignoring the outcome of one of them.”As for “certainty”, Lord Sumption openly mocks the notion that the Coflexip/Unilin approach gives rise to desirable certainty. Instead, he says, “it makes the outcome dependent on the wholly adventitious question of which of two concurrently competent jurisdictions completes its procedures first.” 
So, in the end, Poulton is “no longer good law”. Down with it go Coflexip, Unilin and the Court of Appeal’s decision in Virgin v Zodiac. Now, a party defeated in the English court can rely on the subsequent amendment or revocation of the patent (whether by the EPO or a later UK court decision), as an absolute defence to liability in a damages inquiry. 
Both Lord Sumption and, in a supporting judgment, Lord Neuberger go further. Even after damages are fixed by the completion of an inquiry there may still be a defence if the patent is amended or revoked at that stage. Lord Neuberger goes further still. Even after payment of the damages there may still be grounds for restitution. 
Both judges also draw attention to the present guidelines on stays set out in Glaxo v Genentech. The guidance given is that the English courts should normally refuse a stay of its own proceedings if it would be likely to resolve the question of validity significantly earlier than the EPO. 
Describing that guidance as “difficult to defend”, Lord Sumption postulates that even following this judgment, difficulties can arise if the EPO revokes a patent after judgment is given for liquidated sum. He goes on to say: 
“…..even if the EPO opposition proceedings are concluded in time to affect the English proceedings, the uncertainty and waste of costs involved do little credit to our procedures.” 
There is an open invitation from both Lords Sumption and Neuberger to the Patents Court and the Court of Appeal to review the guidelines. In the end, this may prove to be the most significant outcome of this decision. 
So, Unilin has finally gone. It has always been controversial. There have been times when it appeared that Lord Justice Jacob was its only proponent. However, the frailties of the Poulton/Coflexip/Unilin edifice were starkly exposed by the circumstances of this case and Lord Sumption took the opportunity to reduce it to rubble. In its place stands a more logical, and importantly, a more just structure.

6 comments:

MaxDrei said...

I think this decision will provoke more oppositions at the EPO. I think the EPO backlog is set to swell even more. I think this decision tips the balance towards bifurcation of infringement and validity.

The German courts are forbidden from examining validity while a Patent Office opposition is pending. They are understandably therefore rather keen on interim injunctive relief.

So, from the beginning, in 1978, Germans have filed two out of every three oppositions at the EPO. All those German-filed oppositions are mainly there to show the German infringement courts that it would be unsafe to enjoin the infringer. So you could argue that, at least for the Opponent, the longer the pendency of the opposition, the better.

Anonymous said...

More generally I've found that there is little to be lost in claiming too broadly in the first place, and there can be substantial commercial advantages in doing so. Clearly there are specific situations where it is unwise, but in general the system tends to reward claiming broadly and rarely punishes a party for it.

Anonymous said...

Interesting to see PatentlyO's report yesterday of Fresenius v Baxter where a finding of invalidity in re-examination by the USPTO superseded a Federal Circuit finding of validity. Again an example of a Court having to defer to a patent office.

(http://www.patentlyo.com/patent/2013/07/fresenius-v-baxter-pto-reexamination-decision-trumps-prior-decisions-by-both-the-district-court-and-the-federal-circuit.html)

Anonymous said...

The Fresenius case is much more complicated than that.
Critical issues include timing and whther or not an Article III case was fully and finally decided (it was not). It is less a matter of 'deference' and more a matter that the Article III decision was not complete before the Article I decision came back and mooted the matter.

Newman in her dissent is advocating a change in law.

Anonymous said...

I have to say I'm pleased with this result. As someone who works in the industry I was always both annoyed and embarrassed that the courts would make someone pay out millions of pounds for "infringing" a patent that by that stage had been retrospectively revoked.

If I remember correctly, CIPA magazine was somewhat dubious about the Stolt judgement when it came out, and suspected it wouldn't last.

Anonymous said...

Well Gordon would say all that wouldn't he?

And, Mr Kat, just because the Supreme Court agrees with you does not make you right. see my comment on the UKHL decision soon to be posted on the more-recent lilly regeneron blog post.

If someone infringes my patent and I win a few pounds in damages and then spend it on cakes, when may I eat those cakes safe in the knowledge that I will not have to sell them to re-pay the damages should at some point, ie anytime, in the future, some invalidity troll will have my patent revoked?

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