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Wednesday, 29 April 2015

The tale of Ticketogo, or Does My Bus Look Big in this Licensing Scheme? Part I: the issues

Over the past few weeks this tired, overworked moggy has been finding solace in the litigation-laced narratives of Patents Court decisions from England and Wales.  Could anything be more restorative of a flagging spirit than pages (and pages) of Arnoldian dicta?  Putting this theory to the test, this moggy has just digested an "unprecedented" pre-action disclosure application decision of Mr Justice Arnold in Big Bus  v Ticketogo  [2015] EWHC 1094 (Pat).


Headline point

Big Bus, an operator of open top bus sightseeing tours, made a successful application for pre-action disclosure against Ticketogo under the Civil Procedure Rules, CPR 31.16, in order to obtain patent licences previously granted by Ticketogo to third parties. Such disclosure would enable Big Bus to quantify the value of Ticketogo's claim for patent infringement, a claim that Ticketogo had made by implication through a series of pre-action letters sent by its solicitors.   The success of Big Bus's application could change the hitherto closed environment in which patent licences are negotiated and may launch similar applications by alleged infringers who are faced with similar correspondence from patent licensing entities or otherwise. 

Background 

Ticketogo is the proprietor of UK patent No 2 391 101 entitled "Ticketing system" that claims a method of issuing a ticket containing a barcode in an image file format over the internet.  The Register of Patents records that 38 companies have entered into licences under this patent. At the hearing, Ticketogo's solicitor stated that the true number of licensees was actually over 60 companies.  On the evidence before the judge, Ticketogo does not conduct any business other than patent licensing.  

...but don't get taken for a ride!
In October 2012, Ticketogo's solicitors wrote to Big Bus, alerting them to the existence of the patent and informing them that they were prepared to enter into a licence with Big Bus for it, as they had recently done with another "major coach travel operator".  Big Bus replied that it did not require a licence.  Oh, yes you do, said Ticketogo.   Big Bus retorted that its system did not fall within the patent's claims.  Ticketogo responded that it certainly did and warned Big Bus not to challenge the patent's validity because to do so "is always a complicated and expensive exercise, by the time that technical experts and Counsel have got involved".  Ticketogo also explained that National Express Group was a licensee of Ticketogo's, presumably to encourage Big Bus to follow suit.  

By the end of January 2013 the record fell silent, perhaps because of ongoing without-prejudice negotiations.  The next letter came from Ticketogo's Chief Legal Officer in April 2013, informing a representative of Big Bus that further new licences had been entered into with third parties and inviting dialogue on the matter.  Fast-forward to February 2015: Ticketogo's solicitors wrote to Big Bus' solicitors, refreshing the "you need a licence" correspondence and requesting that Big Bus explain fully their position on validity and infringement if they were not willing to enter into a licence. Big Bus responded by requesting pre-action disclosure of four categories of documents, including the copies of the licences.   Ticketogo declined to provide disclosure with the line:
"If the Big Bus Company’s strategy is to bury its head in the sand in the hope that our client’s claim will disappear, it is mistaken. The Big Bus Company should be in no doubt that our client’s claim will not disappear, and the size of the claim grows with each day of unlicensed activity."
The application

Big Bus launched its application for disclosure of all licences granted by Ticketogo under the patent, and in particular those named by Ticketogo in correspondence.  The proposed order also contained a confidentiality club to be agreed or determined by the court in the event that the documents contained confidential information.  The evidence in support of the application highlighted that Ticketogo had repeatedly relied on the fact that third parties had taken out licences in order to persuade Big Bus to do the same.  It also stated that it was desirable to reach a commercial agreement but, in order to establish the value of Ticketogo's claim, they would need disclosure of the existing licences.  Such information would inform settlement.  Ticketogo did not serve any evidence in opposition to the application.  

The law

Before an action is commenced, the court has the power to  order a  would-be party to disclose documents.  The philosophy behind this power is to assist litigants in disposing of the dispute before proceedings are commenced.  In particular, pre-action disclosure is desirable where it disposes fairly of the anticipated proceedings, assists in resolving the dispute without the need for proceedings or saves costs (see Civil Procedure Rule 3.16(3)(d)).  Pre-action disclosure is generally "desirable" where the information is only known to one of the parties (see XL London Market v Zenith [2004]Birse v HLC [2006] and Briggs v The Governors of Southfield School for Girls [2005]).  The applicant and respondent also have to be likely parties in any subsequent proceedings and the documents ordered for disclosure would have, more probable than not, had to been disclosed under the respondent's standard disclosure obligations (see Hutchinson 3G UK v O2 [2008]).   These requirements have to be satisfied first.  The second stage is a matter of the judge's discretion: should an order be made?  

Don't mess with Big Buses ...
Ticketogo's solicitor relied on two older authorities in relation to discovery in IP cases -- Hazeltine v BBC [1979] and Baldock v Addison [1995].    In conducting legal research of his own, Mr Justice Arnold relied on two further cases that had not been cited in argument.  All of these cases involved an argument esoteric to IP cases (and other cases) under English procedure.  For IP cases, the normal course is that liability is decided first, with the question of damages following in a separate trial.  This is sometimes referred to as a "split trial" or, to the horror of some, "bifurcation".  There is a case management justification behind a split trial -- there is no need to spend the time and money in disclosing documents and preparing your case on quantum of damages if the patent is not valid or infringed.  The four cases cited here focused on the argument that disclosure which was sought before liability was determined, of matter that related to the question of damages, should not be ordered by the court.  

In Hazeltine, the plaintiff sued the BBC for infringement of two patents over a 10 week period and sought an inquiry as to damages.  The BBC denied infringement and maintained that the patents were invalid.  The defendant was reluctant to incur the costs of successfully defending the action especially if they totalled more than the damages.  Because the plaintiff exploited its patents through licensing activities and not manufacture, the defendant considered it would be able to disclose a reasonably royalty rate.  Accordingly, the BBC asked for discovery of all the licence agreements granted by the plaintiff under the patents.  The plaintiff resisted discovery on the basis that those agreements were not relevant because liability had not been determined and, in any event, discovery should be refused in the exercise of the court's discretion.  Although Mr Justice Whitford did not reach a final conclusion on the "split trial" point, he implied that the court should be able to order disclosure on matters of quantum if the spending of enormous sums of money could be avoided.  Nevertheless, in his discretion the discovery sought by the BBC was burdensome and he refused the discovery application.  

Discovery!
In Baldock, the plaintiff claimed an inquiry as to damages or an account of profit for the alleged infringement by the defendants of his musical work.  There was to be a split trial, with liability being determined first and quantum being determined only if the plaintiff was successful.  The plaintiff requested discovery on issues relating to quantum which, he said, were necessary to make an informed assessment of the value of his claims.  This information would assist him in assessing the merits of pursuing his action, allowing the legal aid authorities to consider whether to support his claim and providing an informed response to any settlement.  The Master ordered discovery on quantum, but the defendants appealed, maintaining that the court had no jurisdiction to order disclosure on quantum until liability was determined and that, accordingly, the court should exercise its discretion to limit discovery in this respect.  Mr Justice Lightman rejected the first ground on the basis that the mere existence of a split trial did not remove the relevancy of quantum issues in the action as a whole.  However, he allowed the appeal on the second ground, holding that the court "has discretion in the case of a split trial whether or not to limit discovery to the issue of liability" unless it was necessary.  

In Kapur, the claimant claimed losses as a result of a fire against its insurance broker following the broker's repudiation of the insurance policy for non-disclosure.  The judge ordered a split trial.  The broker appealed requesting a full trial and, in the alternative, discovery in relation to quantum in order to enable the broker to make an informed payment into court or settlement offer.  The Court of Appeal dismissed the appeal on the ground that standard disclosure on quantum ordered before liability is assessed would defeat the economic benefit of a split trial.  However, where a party requests specific information or documents, the court may order disclosure -- but  in Kapur no such request was made.  

In Unilin, the claimant sued the defendants for patent infringement.  At the case management conference, the claimant sought disclosure of information as to the volume of sales of an allegedly infringement product made by or on behalf of the defendants.  This was requested in order to assess the value of the claim.  Relying on Baldock and Kapur, Judge Fysh QC ordered he defendants to provide a "broad outline" of the amount of the product sold.  Such an outline would be in accordance would be in the spirit of the civil procedure rules and not burdensome. 

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