L'Oréal v RN Ventures: exclusive licence registration and costs recovery

This Guest Kat has been asked on a few occasions by non-IP specialists - do I really have to register my exclusive patent licence with the UK IPO? The response has been that registration within the 6 month time limit is well worth the minimal effort that it entails.  The cost implications of failing to do so - for both exclusive licensee and the patentee - have been illustrated by a decision of the Patents Court which became available yesterday, which can be found here.  The first instance decision in L'Oreal SA v RN Ventures Limited which established liability for patent and registered design right infringement was previously reported on this blog by the Amerikat here and here (patents) and Rosie here (designs).  Yesterday's decision concerns the claimants' attempts to recover their legal costs from the defendant where an exclusive patent licence was not registered promptly. 

The IPKat's exclusive licence (registered of course)

The law and public policy 

s68 of the UK Patents Act provides as follows:

"Where by virtue of a transaction, instrument or event to which section 33 above applies a person becomes the proprietor or one of the proprietors or an exclusive licensee of a patent and the patent is subsequently infringed, before the transaction, instrument or event is registered, in proceedings for such an infringement, the court or comptroller shall not award him costs or expenses unless:
(a) the transaction, instrument or event is registered within the period of six months beginning with its date; or 

(b) the court or the comptroller is satisfied that it was not practicable to register the transaction, instrument or event before the end of that period and that it was registered as soon as practicable thereafter."

An exclusive licence falls within s33 of the Act and is therefore required to be registered.

Carr J. explained that the public policy underlying s68 is not concerned with potential prejudice to a defendant to infringement proceedings.  It is concerned with the consequences of a failure to register and provides an incentive to ensure that registration is performed by an appropriate date.  The UK Supreme Court in Schutz v Werit has previously identified the need to give s68 some "bite".  

Background

The first claimant, L'Oréal SA is the proprietor of the patent and granted an exclusive licence to the second claimant, L'Oréal UK on 1 July 2008 which was amended on 1 August 2012.  The exclusive licence was not registered until 9 December 2016.  It was common ground that s68 prevents recovery of costs by L'Oréal UK, the exclusive licensee.  The issue before the Court concerns the practical effect of s68 where both the patentee and the exclusive licensee are claimants.  

Can a patentee recover the costs of the action before the exclusive licence is registered?

 

The claimants argued that L'Oréal SA is entitled to recover all of the legal costs of the infringement claim (and on the facts, has in fact been paying them), even though s68 prevents L'Oréal UK from recovering costs before the registration of the licence.

The defendant resisted this on two grounds.  First, it was argued that the exclusive licence expressly gave L'Oréal UK the right to sue, the cause of action resides only with that entity, and the patentee was only joined as a formality under s67(3) of the Patents Act.  This was rejected by the Court - the licence only confirmed that the licensee could bring proceedings in addition to the patentee, and the cause of action lay with both claimants. 
Secondly, the defendant submitted that if the patentee can recover all of the costs of the infringement action in circumstances where s68 requires the exclusive licensee to be deprived of certain costs, then s68 would have no bite.  The claimants are parent and subsidiary companies, and L'Oréal would have managed to avoid the consequences of failing to promptly register the exclusive licence, as all of those costs would be recovered by the patentee in any event.  The judge accepted that this was a valid concern, and concluded that the exercise of "a discretionary power to award costs should be informed by, and should reflect, the statutory policy. In the present case, I consider that as a matter of discretion, I should deprive both Claimants of a proportion of their costs; the question is what proportion." [Merpel wonders whether it would have made any difference if the patentee and exclusive licensee had not been members of the same group...]

Calculation of the percentage deduction

The successful registered design claim accounted for 20% of legal costs, with another 30% attributed to the patent revocation action.  Of the remaining 50% of legal costs attributable to patent infringement, approximately 70% took place pre-registration, with 30% occurring post-registration.  The judge split the patent infringement legal costs 50-50 between L'Oréal SA and L'Oréal UK, meaning that the appropriate costs deduction is 17.5% (70% of 25%).  The defendants argued that this amount should be reduced even further, because it does not take into account future infringements that have been stopped by the injunction.  This was rejected by the judge, otherwise s68 would frequently have limited consequences as the injunction may be the purpose of the proceedings. 

Leave to appeal

Is this the end of the matter? Not necessarily.  Both sides sought and were granted leave to appeal to the Court of Appeal, notwithstanding that the matter involved a discretionary costs award.  This was explained on the basis that this was an unusual case in respect of the principles applied and in the apportionment of costs.  The IPKat will keep you updated if the case proceeds to the appeal stage.