For the half-year to 31 December 2014, the IPKat's regular team is supplemented by contributions from guest bloggers Rebecca Gulbul, Lucas Michels and Marie-Andrée Weiss.

Regular round-ups of the previous week's blogposts are kindly compiled by Alberto Bellan.

Thursday, 9 January 2014

Flat Out Dismissal: Court of Appeal upholds Floyd J in Virgin Atlantic's flat-bed saga

No fudge from
Floyd, rules CA
Two years ago during the Olympics, the AmeriKat sat on her sofa with the door ajar, letting the cool summer breeze tickle her paws. It sounds tranquil, but she was in the midst of reading a beast of a judgment from Mr Justice Floyd (as he then was) in the ongoing Virgin Atlantic saga in Virgin Atlantic v Zodiac [2013] EWCA Civ 1713. Back then Mr Justice Floyd held that, of the three patents at issue, all were valid, two were not infringed, and one was infringed and a geeky non-designation point was dismissed (more on that below). 16 months, nine barristers and three law firms later, the Court of Appeal upheld Mr Justice Floyd’s decision in its entirety. But, more importantly, the AmeriKat has finally experienced a flatbed experience – thank you, American Airline Advantage miles – and now can fully appreciate what all the fuss is about (or was it the unlimited ice cream sundaes and champagne….?)

Mr Justice Floyd’s decision

For a refresher of Floyd J’s decision see the AmeriKat’s posts on the decision (here and here) which set out the background and procedural history of the matter. However, the AmeriKat provides you with a very birds-eye bullet-point summary as follows:
• Virgin alleged that three patents ('908, '711 and '734) were infringed by Contour’s Solar Eclipse seat and brought proceedings against Contour (now Zodiac) and some of its customers.

• The '908 patent was the focus of the proceedings (the points arising on the '711 patent were held to be material in all respects)

• The '908 patent related to the seating system for passenger aircraft in which seats, which convert into flat beds, are arranged in a space-saving “inward facing herringbone” configuration.

• The '908 patent was amended following opposition proceedings before the European Patent Office (EPO). 
Don't like flat beds? There are other options
• The main argument on infringement of the '908 patent was what element of the Solar Eclipse seat met the requirement for a triangular passenger support element. Floyd J held that the Solar Eclipse seat’s headrest did not meet this requirement because it was one of the movable passenger-bearing elements and that it was not disposed in the rearward space when the seat is in seat mode. The rear console located beneath the headrest also did not meet this requirement as it was not substantially coplanar with the passenger support elements and was beneath the movable passenger bearing elements. The same applied to the Variant Solar Eclipse headrest.

• The '734 patent was published after the sales of the Solar Eclipse and so Virgin’s claim were made quia timet and only for injunctive relief.

• Floyd J held that the '734 would be infringed as the patent did not possess the all-vital “passenger support element”.

Some people really need
a triangular headrest ...
• Contour recognized that an additional passenger support element positioned in the rearward space was an inventive advance over the cited prior art, so therefore did not challenge the inventiveness. However, the judge considered what would happen if he was wrong on construction: in such an eventuality, the patent would protect seats where there was no separate passenger support element and such a requirement could be met by a head rest. The obviousness attack in these circumstances was rooted in British Airways UK Patent Publication No 2 26 824A whereby the set, when reclined, would extend in to a triangular space between the back of the seat but resulting in a further gap between the headrest and the cabin wall. The Virgin Atlantic seats went further; the triangular headrest extended into the full space between the back of the seat and cabin wall. This, Floyd J held, would not have been obvious to the skilled addresses. Contour's obviousness attacks failed.

• The net result was that the '908 and '711 patents were not infringed by the Solar Eclipse seating system, the '734 patent would be infringed and none of the patents were invalid for added subject matter or for obviousness.
The Court of Appeal’s decision

Readers may be expecting a breakdown of what the Court of Appeal said on all these issues. The AmeriKat could entertain (or perhaps bore) some of you with details of their view, but it does not make for a very interesting read because they essentially agreed with Floyd J’s reasoning and upheld him on every point.

What was interesting was the point on non-designation of the '908 patent. That point was previously ignored by the AmeriKat in her reporting of Floyd J’s decision because, after seven hours of getting to grips with the judgment and distilling it into a post, reading anything that dealt with the Patent Rules 2007 was just a bit too much for her. However, it peaked her attention this time around as the defendants based their argument on the European Convention on Human Rights (ECHR). Here is the story:

When filing the parent application, Virgin designated all available Patent Cooperation Treaty (PCT) contracting states. It included a GB national application and an EP(UK) designation through the EPO. Virgin then filed the divisional application which would become the '908 patent. In form 1001E it kept the pre-checked box at 6-1 that states that all European Patent Convention (EPC) contract states are designated. The box at 6-4 stated that the applicant intended to pay designation fees for a list of more than 20 states which did not include the UK. Then a note at the bottom of the form stated that “GB is expressly NOT designated in this application”. The '908 application was published with designations including the UK, but Virgin then wrote to withdraw the UK designation and informed the United Kingdom Intellectual Property Office (UKIPO) that it would withdraw the UK designation prior to grant. But Virgin took no further steps to withdraw the patent. '908 was inevitably was granted and placed on the UKIPO patent register.

The Zodiac group ...
Premium, a former group company of Zodiac, had appealed a decision of the UKIPO in which the Hearing Officer at the UKIPO rejected Premium's application on the basis of Rule 50 of the Patent Rules 2007, which would have had the effect of correcting the register to remove the GB designation. This was because, in order to challenge the validity of the '908 patent, the Hearing Officer would be required to review the decision of the EPO to grant it with a UK designation and he had no such power under the UK Patents Act of 1977. The only way Premium could revoke the patent would be on the basis of Section 72 of the Patents Act 1977 which provides for the power to revoke patents on substantive grounds (novelty, inventive step, etc). Although there was no appeal from that part of the judge’s order, the defendants argued that '908 patent was a nullity in so far as it purported to designate the UK as part of the grant.

The question before the Court of Appeal was thus whether the process of examination and grant in the EPO was open to challenge in the British Courts.

When the '908 patent was granted and published in the European Patent Bulletin, it obtained legal status under section 77(1) of the Patents Act 1977. The only attack could therefore be on substantive grounds (section 74(3) and 72 of the Patents Act 1977 and Articles 52-57 EPC). This should be the end of the story and this was supported in Genetech Inc’s Patent [1989] RPC 147. In that case, the Court of Appeal held that the opening words of Section 72(1), which state that the court or a comptroller can revoke a patent “on (but only on)” a list of substantive grounds, are so robust that failure to comply with other requirements outside those listed substantive grounds for revocation cannot be considered an additional ground for attack. In order to get around this and advance a substantive challenge, the defendants argued that their Article 6 ECHR was breached. Article 6 provides that:
"In the determination of his civil rights and obligations … everyone is entitled to a fair and public hearing … before an independent and impartial tribunal established by law".
First, the defendants had to establish the court had jurisdiction under Article 1 ECHR. The Court’s decision on this was as follows:
• The European Patent Convention is an international convention which establishes a common system of law for the grant of patents in each of the contracting states. It exists independently of the EU and it is not a signatory to the European Convention of Human Rights (ECHR).

• As a matter of domestic law, courts will not consider themselves competent to adjudicate upon rights and obligations which arise out of transactions entered between sovereign states, i.e. a refusal to challenge the exercise of the Royal Prerogative to make treaties.

• The UK as a contracting state did not have any “de facto involvement or responsibility for the examination or grant process of the '908 patent. That is entirely a matter for the EPO which is both factually and legally independent of the Comptroller and the UKIPO in the exercise of its grant-making powers. It employs its own staff; it has it own Boards of Appeal chaired by a legally qualified chairman; and the patents it grants have under Articles 2(2) and 64(1) of EPC 2000 authoritative effect in the designated contracting states without any further action or adjudication by the Comptroller. Section 77(1) of the 1977 Act makes European patents directly effective in domestic law from the date of publication in the European Patent Bulletin. The Comptroller's function is purely administrative.” (para 154)

• The mere fact that the powers of the EPO derive from a surrender of UK sovereign power under the EPC is insufficient to create jurisdiction under Article 1 ECHR:
“To allow the English courts to have a general power to review the validity of grants on grounds not specified in the EPC would be to undermine fatally the whole system for the grant of European patents and would constitute a breach of the UK's treaty obligations under the EPC. Although the Strasbourg jurisprudence establishes that the UK cannot escape the consequences of its own breaches of the Convention by relying on its own international obligations, the cases relied on by Mr Saini do not establish that any actions by an independent body such as the EPO which might be regarded as non-Convention compliant can be visited on the contracting states solely on the basis that they are required to give legal recognition to what it has done.” (para 155)
Secondly, if the court was wrong and the British Courts did have jurisdiction, the defendants would then have to prove that their Article 6 rights were breached. The Court of Appeal was faced with the difficult question of whether the EPO’s denial of a remedy for incorrect designation and Floyd J’s refusal to allow the issue of designation to be raised in any form of domestic proceedings engaged Article 6 because it denied the defendants from a hearing of a ground of opposition to the ‘908 patent. To win on this the defendants would have to show that (i) they had a right to a fair hearing of their case on non-designation and (ii) they had a legal right to raise that issue as a basis for challenging the '908 patent’s validity in the UK. The Court of Appeal held thus:

On Article 6, the position of the English court is that that Article does not itself create powers of adjudication or other substantives rights which the parties do not enjoy under domestic law:
“[A]rticle 6 forbids a contracting state from denying individuals the benefit of its powers of adjudication; it does not extend the scope of those powers.” (see Holland v Lampen-Wolfe [2000] 1 WLR 1573 and Jones v Ministry of the Interior of Saudi Arabia [2007] 1 AC 270)
The defendants had no substantive right of challenge of the designation under domestic law by virtue of sections 72 and 74 of the Patents Act 1977 and the principle not to challenge the exercise of a Royal Prerogative. The only right they had under domestic law and which was protected by Article 6 ECHR was the right to argue whether their designation argument was justiciable (see paragraph 172 of the decision).  Although annoying for parties, the court held that it was “inherent in the scheme of the EPC that some errors, even if detected, will not be open to correction at the suit of a third party” . Paragraph 170 continues:
“Insofar as they take place as part of the examination of the patent application, they are essentially administrative matters which are not open to challenge at the suit of a third party and lie procedurally outside the scope of Article 6 of the ECHR: see X v Austria (Application 7830/77). Even if the errors go arguably to jurisdiction, the exclusion of a right to challenge the validity of the patent on those grounds can be justified in terms of the need for legal certainty. Absent a challenge on grounds of patentability, the patent will be placed on the register and both the patentee and third parties may alter their economic position in reliance on it. They are entitled to do so on the basis that Article 100 of the EPC establishes an exhaustive code for determining its validity.”
Conclusion

So has the EPO emerged form this attack stronger than ever? Well, yes (in some respects) and that is no bad thing for legal certainty and for patent owners. Once a patent has been granted by the EPO, it is seemingly immune from attack on procedural grounds (but not on substantive grounds under Section 72) before the British courts.

Besides the 0-0 draw on the substantive challenges to the patent, you would be forgiven in thinking this decision was a success for Virgin (and patent owners) – not least because the Court of Appeal seemingly devoted more analysis and space to the designation issue. But, it is all a matter of perspective. According to Wragge & Co (who acted for the defendants), this decision was ‘another nail in the coffin’ for Virgin. According to DLA Piper, (lawyers for Virgin) it is Virgin who “retains the more financially important protection that the '734 patent provides, which prevents Zodiac manufacturing or selling the Solar Eclipse seat in the UK”.

With both parties appealing the decision of Floyd J and the status quo being maintained after the Court of Appeal, the AmeriKat cannot be sure either party can jump too high about their respective “successes”. The deciding factor may come down to costs. Merpel considers that whoever does not have to pay the costs in arguing the breach of Article 6 ECHR is the winner on that front. The AmeriKat thinks, however, there can be only be losers in that respect as surely whichever poor lawyer or costs draftsman that has to put together a costs schedule on all these Virgin outings ["And whatever poor judge has to hear it!", chimes the IPKat] has some good grounds for arguing a breach of their Article 8 rights.

19 comments:

Anonymous said...

Hmmm.From my reading of the judgment, I'm not too sure I share your view.

Of the three patents which Virgin sought to establish were infringed, '908, '711 and '734, the damages attached to '908 (the others being asserted on a quia timet basis).

While this may be a logical leap too far, the net result of Virgin litigating for seven years therefore appears to be that Zodiac was able to sell the seats and no damages are payable.

Also, Virgin only asserted '908 against the airlines, so its claim appears to have completely failed there.

I don't know about you, but if somebody sought to prevent me selling my products and claimed up to £49 million (see the Supreme Court judgment) and I sold the products and did not have to pay any damages, I know who I would say was the winner.

Also, a little birdy tells me that '734 (the patent to which DLA attaches so much weight) has been found invalid by the Opposition Division after the hearing but before the Court of Appeal judgment. In those circumstances, DLA's comment that Virgin "retains the more financially important protection that the '734 patent provides" seems a little hollow.

Thoughts?

James Ford, Abel & Imray said...

Yet another nail in Virgin’s coffin was struck on 16 December 2013; Abel & Imray (representing Zodiac Seats UK limited) successfully opposed the ‘734 patent. It was revoked in its entirety in oral proceedings, for lack of novelty over the BA First prior art.

Anonymous said...

You've said that the decision is not a bad thing. I'm not too sure.

Obviously, this is all a question of balance, but look what the Court of Appeal says about its ability to review a fraud on the EPO. It concludes that it would not be able to address it because its powers of review are confined to s. 72. This isn't particularly desirable.

Contrast this to the position if there were a fraud on the UKIPO; the UK courts would never renege from addressing that. As a point of principle, drawing a distinction between the two institutions on the basis that one has an international remit seems odd.

Of course, this all is grist to the mill for Spain's attack on the unitary patent system before the CJEU, of which the lack of judicial review of the EPO is a key limb.

Anonymous said...

Is enforcing a patent which you said you didn't want and was only granted to you by mistake fair? Seems a little counter-intuitive. I suppose there was no real harm at the end of the day as it was found not to be infringed.

Annsley Merelle Ward said...

The Kats comments were made in respect of this particular decision - the merit of appealing Floyd J's decision by either party and the effort, costs and time of arguing before the CoA given the results of the other cases esp on the designation point - not the net effect of all of the litigation.

To be expected, with the question of costs assumingly coming up, it is unsurprising there is now a little PR war of who won (and its good to see it continuing in the comments).

Anonymous said...

There is no question that overall Virgin is the big loser here. They sought £50m in damages and they have received nothing. They will recover some costs on the non-designation issue, but that is as nothing compared with what they wil have to pay overall. Their injunction merely prevents Zodiac from doing somethihng which it stopped doing years ago - the seat is now out of date in any event. Zodiac tok the non-designation point as a safety net. It is a shame it will not get to the Supreme Court as it is a very odd state of affairs that a body whose actions give rise to actionable private rights in the UK is not subject to judicial review in respect of its administrative decisions. Does anyone think that is the right outcome?

Anonymous said...

It is not much ofd a PR war. Zodiac and the Airlines won. Virgin lost. The non-designation point was an interesting sideshow. The real issue was the '908 patent where the damages lay. That was found not to be infringed in its amended form (the right to damages in the unamended form having been thrown out, quite rightly, by the Supreme Court last year). End result? No damages and a huge costs bill for Virgin! Kindly construe that as a "win" for us all?

Anonymous said...

The Court of Appeal decision on non-designation is a massive cop out. If anyone wanted vindication of the Spanish Government's position on the UPS this is it. The EPO is immune from judicial review. Really? No one is suggesting the decisions of the Opposition Division or the TBA can be second guessed by national courts - that would be contrary to the EPC scheme. However, this was not such a decision. It was a simple administrative decision by the examination decision. Does anyone think UKIPO would be similarly immune? As for the suggestino that not even fraud could be reviewed, that is simply perverse. This is not good news for the patent community - it merely confirms many people's fears that it considers itself beyond normal legal principles. The Supreme Court slayed one of those ogres in the Virgin v Zodiac decision last year. The Court of Appeal has missed the opportunity to do the same here.

Annsley Merelle Ward said...

Does anyone know if the parties are appealing on non-designation? I am assuming not given the "we won" comments (again, this Kat is not disagreeing with the net effect).

Would be interested to know if, on the basis of the Strasbourg case-law that was considered by the Court of Appeal, anyone considers that the Court errored in applying the law to the status of the EPO. If not, perhaps this supports Grayling's end-of-year comments re curtailing the role of the EHCR.

Anonymous said...

There will be no appeal on the non-designation issue. It was only ever a safety net in case of a perverse decision by Floyd J or the Court of Appeal on infringement of '908 - the only important issue in the case. It is a shame as there is no doubt that area of law could do with a review by the Supreme Court, but the parties are not so public spirited as to fund an appeal whihc has no possible consequence for them!

Annsley Merelle Ward said...

Thank you for the confirmation. I figured as much, although a win on non-designation for the defendants would add to the "nails" in the proverbial litigation coffin - but suppose there are considered to be too many already...

It also helps to interpret the phrase "'win' for us all" - "us" referring to the defendants, not the public at large. Merpel can only but wonder if the defendants' legal teams are online right now...

Anonymous said...

The question was badly phrased. What it meant to ask was how on earth one could construe that outcome as a "win" for Virgin? Had they not chosen, pointlessly as it turns out, to appeal Floyd J's finding of non-infringement on the '908 patent, none of the other issues would ahve been appealed as they were all subsidiary. As indicated, the injunction based on the '734 patent is preventing Zodiac doing what is has not done for nearly five years! How is that "financially important protection"? Virgin now has to pay the costs of the '908 issues (which were huge and included the most bizarre experimnents ever seen in patent litigation), the costs of the Supreme Court, and the costs of the misconceived damages inquiry it pursued before the Supreme Court brought everyone to their senses over Unilin. In return they get no damages, fail to prevent the use of the seats sold, and will recover some minor costs of the non-designation point. Ooops!

Merpel said...

Merpel is loving the passion in these comments. Feathers being ruffled are her favorite - especially if they are on birds that will eventually become part of her dinner.

Anonymous said...

On the phantom designation issue, if the boot had been on the other foot and Virgin looked like having a GB national patent revoked through the erroneous grant of a EP(GB) patent, would the Court now reject arguments that the GB patent should be maintained?

Roufousse T. Fairfly said...

Annsley,

Many thanks and congratulations for the detailed summary of this convoluted case!

Myshkin said...

Contrast this to the position if there were a fraud on the UKIPO; the UK courts would never renege from addressing that.

Are you sure that a UK court on the request of a third party is competent to fully review the whole UKIPO grant procedure that lead to the grant of a patent, including all fee payments, time limits, any re-establishment in rights, etc.? I am pretty sure UK courts are not competent to do this.

Myshkin said...

To add to my previous comment, s. 72 of the Patents Act is pretty clear.

Subject to the following provisions of this Act, the court or the comptroller may by order revoke a patent for an invention on the application of any person (including the proprietor of the patent) on (but only on) any of the following grounds (...)

There is only one way to understand "but only on". So evident procedural mistakes that should have prevented a patent from being granted by the UKIPO, but did not, are not reviewable by UK courts.

In this particular case of (non-)designation there might be a legal argument to get around s. 72, namely that the designations are not actually part of the EPO's decision to grant but separate facts, and that the factual non-designation of the GB therefore never actually resulted in a national GB patent (the register simply incorrectly reflecting legal reality). This argument is pretty shaky, but it could be tried (I don't think it was tried, but I could be wrong). If accepted, there would be no need to revoke, as the GB patent never existed, so s. 72 would not apply.

Myshkin said...

@Anonymous:
On the phantom designation issue, if the boot had been on the other foot and Virgin looked like having a GB national patent revoked through the erroneous grant of a EP(GB) patent, would the Court now reject arguments that the GB patent should be maintained?

I think the answer is a clear yes.

But note that Virgin could, and in the above hypothetical case should, have appealed the ED's decision to grant on the ground that it designated a state contrary to Virgin's requests.

This old post and its comments may still be of interest. (I'm pretty sure there is another (later) post with possibly useful comments, but I can't find it now.)

Myshkin said...

The post I was thinking of was not on this blog, but on tufty's: Virgin v Premium - yet another chapter.

It seems possible to find in paragraph 6.3 of decision J 7/96 support for the idea that designations are not part of a decision to grant. Otherwise I cannot explain why a designation can still be withdrawn after the decision to grant has been issued. The philosophy of J 7/96 appears to be that designations are a separate issue (their mention in the decision to grant being merely informative) and that the legally valid designations at the time the decision to grant takes legal effect determines which contracting states the decision to grant applies to. Which are the legally valid designations could then still be a matter of discussion after that date.

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