Wednesday, 29 October 2014

Security for costs: a sensible approach

Guardian Barriers IP Ltd v Global Vessel Security, decided by Judge Hacon on 22 September in the Intellectual Property Enterprise Court (IPEC), England and Wales, is a useful little decision on security for costs. Again, this is an extempore ruling which has been picked up only on the increasingly useful Lawtel subscription-only case note service.

In short both parties, which sold anti-piracy devices for ships, were involved in a patent dispute [somewhat annoyingly Lawtel identifies them only as X and Y: it would cost little but add substantially to the value of the note if the parties' real names were used].  In these proceedings X sought an order for security of costs against Y to the tune of £50,000 [which happens to be the amount at which IPEC costs are capped]. Y's published accounts showed that they only had assets of approximately £1,000 and X, citing an email written by Y's solicitor which stated that their funds were limited, was concerned that, if Y lost the action, it would be unable to pay costs to the sum in question.  Y resisted the application for the order for security for costs, showing documents which, they said, showed prospective orders worth £4 million.  Since, if they lost, they wouldn't be ordered to pay X's costs until after the trial -- which was likely to take place in over a year's time -- they would by then have the funds to do so.  Meanwhile such money as they did have was needed for business growth.

Judge Hacon made the security for costs order.  In his view the prospective orders were not firm orders: most of Y's evidence consisted of documents showing that buyers were interested in the product, but there was no confirmation that they were actually going to place orders. What's more, even if Y did sell £4 million worth of products, there was no guarantee that they would make a profit. Looking at the firm and non-speculative side of things, on the evidence Y would not be in a position to pay X's costs if X succeeded at trial so it was appropriate to make an order.  However, security would be fixed at £17,000 (around one-third of the sum for which security was sought), this being the sum that had already been spent by X.  The issue would be reassessed at a case management conference.

It's always interesting to see how issues like this are handled, particularly since the need to give security for costs is frequently cited by SMEs as a reason for shying away from patent infringement litigation even when it is their own patent that is being allegedly infringed and they have received advice that their case is a strong one.  So far as one can see from the skeletal account of the dispute, Judge Hacon's decision here looks like a good, commonsense one.

Tuesday, 28 October 2014

Apple v Samsung in Japan: an English text

Patent litigation blossoming in Japan ...
In May there was a decision of the Japanese IP High Court on Apple v Samsung in which FRAND-based royalties were mentioned. The judgment, which was unsurprisingly delivered in Japanese, was released a month after it was rendered and has since become available to English speakers via this website; it took nearly five months to produce the translation, during the course of which the case settled.

Highlights of this case include the following:


Does a request for an injunction constitute an abuse of patent right? This issue is dealt with from page 17 onwards, one of the highlights being, on page 25, "Whether the respondent (Apple) has any intention of accepting a FRAND licence" (here and here).

FRAND licences

Apple alleged non-infringement of Samsung's patent and sought a declaratory judgment to confirm that Samsung was not entitled to damages from Apple's infringement (a summary of the claim is on page 3). From page 115 onwards the judgment focuses on FRAND (after deciding that Apple infringed Samsung's patent). From page 122 the text discusses whether the patentee should be allowed to seek damages and determination of the "patentee's claim for damages exceeding or equivalent to a FRAND-based royalty".

The court found that damages exceeding a FRAND-based royalty should not in general be allowed, though they may be appropriate in exceptional circumstances. Such circumstances would include situations in which the patentee proves that the alleged infringer is not a willing FRAND-based licensee. The court also decided that the damages equivalent to a FRAND-based royalty should be ordered unless it is significantly unfair to do so (cf the decision of the court of first instance). The court did not find any fact which demonstrated that it was unfair to disallow damages equivalent to a FRAND-based royalty, but found that Apple was a willing licensee which kept on negotiating with Samsung to obtain a licence by presenting specific royalty rates.

The amount of damages is discussed from 130 page onwards. The court analyses the percentage of contribution of the patent in suit in each product in issue, choosing to limit the aggregate royalty at 5% according to WCDMA and other patent pools. The summary of the actual calculation is on page 138 (D).

The court appreciates responses to the public consultation (Amicus Briefs) summarising the responses from page 139.

PatLit is grateful to a friendly reader for this information

Monday, 27 October 2014

Post-settlement infringement: Stretchline makes its mark

Stretchline Intellectual Properties Ltd v H&M Hennes & Mauritz UK Ltd is a Chancery Division, England and Wales, decision of Mr Justice Sales from 14 October. Sales J is not a judge who is normally associated with patent litigation, but this case did not require the application of any rocket science. The judgment was extempore and this case has been picked up only by the subscription-only Lawtel case note service.

This was an application by Stretchline to strike out parts of a defence filed by leading retail clothing company H&M to Stretchline's patent infringement claim. The patent itself related to a method of manufacturing tubular fabric for incorporation in the production of brassieres. Stretchline previously suspected that H&M was selling bras, made by other companies, which incorporated fabric that infringed its patent. and went to court accordingly. H&M's defence was invalidity plus a counterclaim for revocation. These proceedings were settled. Some years later, Stretchline received information causing it to suspect that H&M had returned to its errant ways. Stretchline made some test purchases from H&M stores. then commenced these proceedings. However, in its particulars of claim Stretchline pressed two inconsistent claims: it both sought to enforce the terms of the settlement agreement and alleged acts of infringement, which had been pleaded in the original proceedings, on the basis that H&M had repudiated the settlement agreement. H&M maintained that the patent had at all material times been invalid and denied breaching the settlement agreement.

Stretchline later sought the disclosure of certain documents from H&M in order to be able to decide what position to adopt as to the settlement agreement. Following that disclosure, Stretchline elected not to assert that the settlement agreement had been repudiated, but maintained that it was still valid and sought to enforce its terms. In this application, Stretchline sought to narrow the scope of the issues in dispute by striking out those parts of H&M's defence that sought to raise the issue of the patent's validity. Said Stretchline, the patent's validity had been determined by the settlement agreement, with the result that H&M was disabled from being entitled to allege invalidity. No said H&M, the settlement agreement did not have the effect of precluding the company from raising a defence and counterclaim based on invalidity.

Sales J granted Stretchline's application and struck out those parts of H&M's defence that sought to raise the issue of validity. Said the judge, on a proper interpretation of the agreement, all matters that were in dispute between the parties in the first action, including the issues raised by H&M in relation to the patent's validity, had been definitively settled by the terms of the agreement. What's more, the fact that Stretchline had originally advanced inconsistent pleadings did not mean it had waived its right to rely on the terms of the settlement agreement. Nothing in the way that Sretchline had pleaded or presented its case constituted a waiver of its right to rely on the agreement. In conclusion was in the interests of justice and the overriding objective to give effect to the settlement agreement and narrow the issues between the parties by striking out the relevant parts of H&M's defence.

It's good to see the court affirming the principle that voluntarily-made settlement agreements should be given the fullest effect, but one wonders what the drafting of the agreement in this case was like. The ideal settlement agreement will cover possible post-agreement outcomes, of which breach by an alleged infringer is one of the more predictable ones.  However, it can happen that a settlement agreement is agreed only at the cost of it having something of an open weave, with loosely-drafted terms that one or other party are less likely to agree to.

Friday, 24 October 2014

Broad Claims – supported if no indications to the contrary X ZR 19/11

The German Federal Court of Justice (BGH) had to decide on an appeal against the decision of the Federal German Patent Court to nullify a patent relating to stents having two interlacing meandering patterns as shown in the embodiment on the right-hand side.
The pattern looks somewhat complicated at first sight but a thorough inspection reveals that it is basically a superposition of horizontal meanders along the lines 13 and vertical meanders along the lines 9, wherein the latter vertical meanders are phase-shifted or – to use the words of the patent – “even” and “uneven” patterns in alternating arrangement. However, the limitation to “even” and “uneven” patterns in alternating arrangement did not figure in claim 1 as granted but only as a feature of the (single) embodiment of the invention.

The Hoge Raad and the Irish High Court had limited the claim to stents with “even” and “uneven” patterns in alternating arrangement by arguing that the documents as originally filed lacked any disclosure supporting the broader claim.

The BGH did not follow this line and judged that – to the contrary of what the other courts had found – the lack of any disclosure excluding stents without phase shift from the invention leads to the conclusion that these embodiments are disclosed as a part of the invention in the documents as originally filed.

The full text of the decision in German language can be accessed here.

Thursday, 23 October 2014

Federal Circuit Clarifies Limits To "Sale" and "Offer For Sale" Infringement In Foreign Transactions

One perplexing issue facing companies involved in product development, manufacture and distribution in multiple jurisdictions is the potential extraterritorial effect of a nation’s patent laws. The U.S. Supreme Court has noted that, “[t]he presumption that United States law governs domestically but does not rule the world applies with particular force in patent law.” Microsoft Corp. v. AT&T Corp., 550 U.S. 437, 454-55 (2007). Yesterday, the Federal Circuit ruled that the sale of a patented component to a foreign buyer and delivered outside the U.S. is not a “sale” or “offer for sale” under the Patent Act, even if price negotations, customer support, and other activities took place in the U.S. Halo Electronics, Inc. v. Pulse Electronics, Inc., No. 2013-1472 and 1656 (Fed. Cir. Oct. 22, 2014). 

Halo was a patent infringement action involving patents for printed circuit board components manufactured and sold by the defendant, Pulse. Contract manufacturers used the Pulse components to assemble products for Cisco, which Cisco then distributed overseas. Although Cisco did not directly purchase the components, it negotiated with Pulse and other suppliers price ranges than would apply to components purchased by Cisco’s contract manufacturers. The actual sales contracts relating to the Pulse components alleged to infringe were negotiated and entered into outside the U.S., and the actual accused components were manufactured, delivered, and assembled into finished products outside the U.S. Nonetheless, significant activity occurred in the U.S.:
However, Pulse engaged in pricing negotiations in the United States with companies such as Cisco, and Pulse’s employees in the United States approved prices that its agents quoted to foreign customers when the quoted prices fell below certain thresholds. Pulse also engaged in other activities in the United States, including meeting regularly with Cisco design engineers, sending product samples to Cisco for pre-approval, attending sales meetings with its customers, and providing post-sale support for its products.

Slip op. at 4-5. The Federal Circuit ruled that this conduct was not infringement under 35 U.S.C. § 271. First, it was not a “sale” in the U.S.: 
Consistent with all of our precedent, we conclude that, when substantial activities of a sales transaction, including the final formation of a contract for sale encompassing all essential terms as well as the delivery and performance under that sales contract, occur entirely outside the United States, pricing and contracting negotiations in the United States alone do not constitute or transform those extraterritorial activities into a sale within the United States for purposes of § 271(a).

 Slip op. at 12.  Applying that standard to Pulse, the court found no infringement:
While Pulse and Cisco engaged in quarterly pricing negotiations for specific products, the negotiated price and projected demand did not constitute a firm agreement to buy and sell, binding on both Cisco and Pulse. Instead, Pulse received purchase orders from Cisco’s foreign contract manufacturers, which then firmly established the essential terms including price and quantity of binding contracts to buy and sell. Moreover, Pulse was paid abroad by those contract manufacturers, not by Cisco, upon fulfillment of the purchase orders. Thus, substantial activities of the sales transactions at issue, in addition to manufacturing and delivery, occurred outside the United States. Although Halo did present evidence that pricing negotiations and certain contracting and marketing activities took place in the United States, which purportedly resulted in the purchase orders and sales overseas, as indicated, such pricing and contracting negotiations alone are insufficient to constitute a “sale” within the United States.

 Slip op. at 12-13. For similar reasons, the court further held that the activity was not an “offer for sale,” which also is an act of infringement under § 271(a): 
An offer to sell, in order to be an infringement, must be an offer contemplating sale in the United States. Otherwise, the presumption against extraterritoriality would be breached. If a sale outside the United States is not an infringement of a U.S. patent, an offer to sell, even if made in the United States, when the sale would occur outside the United States, similarly would not be an infringement of a U.S. patent. We therefore hold that Pulse did not offer to sell the products at issue within the United States for purposes of § 271(a). 

Slip op. at 16. The full opinion is available HERE.


Wednesday, 22 October 2014

Now Ropes & Gray launches EU patent litigation site

PatLit has just been told about the Ropes & Gray Unitary Patent site, which promises to provide "up-to-date resources and information on developments surrounding the EU’s proposed Unified Patent Court". The site can be accessed here.

According to the firm's publicity, its team of qualified US and UK lawyers will regularly be updating the site, so visitors are invited to keep checking back when necessary for any developments.

As usual, readers' responses and evaluations are appreciated, particularly with regard to how law firms' European patent litigation web pages compare with one another.

Tuesday, 14 October 2014

Patents County Court survey: the results

Readers of this weblog may recall the publication of a request for assistance with regard to research undertaken by Kingsley Egbuonu into the Patents County Court for England and Wales. The fruits of Kingsley's research are summarised below, together with a link to his survey results. As Kingsley explains:
In 2010 Lord Justice Jackson published his final report (“The Jackson Review”) which made recommendations for, among other things, the reform of the Patents County Court for England and Wales (“PCC”). One of the recommendations relevant to the PCC was the implementation of the proposals in the Intellectual Property Court Users’ Committee (“IPCUC”) Working Group’s final report. Overall, the main objective of the reform package was to widen access to justice for small and medium-sized enterprises (“SMEs”) and private individuals in intellectual property (“IP”) disputes.

Following various changes to its rules of procedure, the PCC began operating under a new regime on 1 October 2010. The PCC witnessed further changes until 1 October 2013 when it was replaced by the Intellectual Property Enterprise Court (“IPEC”). However, in the year of its abolition, it was possible to find reasonable information which can be used to explain how the PCC’s new regime works in practice (on which see Angela Fox’s book on the IPEC) and/or to assess the extent to which the policy objectives of the reform have been achieved. My research, which was conducted between April 2013 and September 2013, attempted to do both.

The research primarily relied on a body of case law developed under His Honour Judge Birss QC (as he then was) and published by BAILII, legislation, statistics from the Ministry of Justice, existing literature, and empirical evidence from IP practitioners. The empirical evidence was obtained through an online survey which recorded 30 responses. The survey questions were framed based on the Jackson Review recommendations and issues raised in various Consultations relating to it (e.g. see the concerns raised IPCUC Working Group’s final report).

The survey results can be viewed or downloaded here.

The summary of my findings, as of 30 September 2013, are as follows:

  1. Differentiation: Since 1 October 2010, there has been a clear distinction, in practice and procedures, between the PCC (continued by the IPEC) and the Patents Court or Chancery Division of the High Court. This helps the parties, typically claimants, make an informed decision about forum.
  1. Costs capping and financial remedies limit:
    • Generally, both measures were applied consistently, even in peculiar circumstances, in order to reassure prospective litigants. Sample of cases analysed found that average costs award was under £34,000 for liability trial and under £250,000 for damages.
    • The costs capping regime has not deterred parties from incurring own costs above the relevant caps (e.g. see Lumos Skincare Ltd. v Sweet Squared Ltd & Others [2012] EWPCC 28 and Henderson v All Around the World Recordings Ltd & Another [2013] EWPCC 19).
  1. PCC caseload:
    • The statistics on the number of cases issued in the PCC are inconsistent. Nonetheless, it is generally clear that more cases have been issued post-October 2010 than ever before. This view may be supported with the rise in the number of PCC judgments published on BAILII.
    • Further, the uptake of the small claims track was also encouraging: 16 cases were issued in 2012 and 28 as of July 2013. Lastly, the PCC entertained a variety of claims. Overall, the popularity of the PCC post-October 2010 is a clear evidence of success.
  1. Profile of parties:
    • A considerable number of cases involved SMEs and private individuals. Around 63 judgments published by BAILII (between November 2010 and 11 September 2013) involved an SME or private individual as a party. Arguably, this may well be the evidence to support the rationale behind the PCC reform.
    • On the other hand, my research did not find substantial evidence to demonstrate that larger enterprises were abusing or disproportionately using the PCC; equally, there was no evidence to suggest that there was a flurry of litigation against large enterprises by SMEs as a result of the reforms.
    • The PCC served private individuals and SMEs (represented or otherwise) and large enterprises equally.
  1. Length of trial: Cases were generally listed and tried within two days; only a handful lasted longer. There was also an improvement in the length of time cases take to come to trial.
  1. Transfers:
    • My research did not find any evidence to demonstrate that there was a disproportionate number of litigation on transfers between the PCC and the High Court.
    • Statistics revealed that just one case was transferred from the PCC to the High Court, whereas well over 10 were transferred to the PCC from other courts. The overwhelming majority of the PCC’s case load originated and remained there.
Despite the little literature on the subject and difficulty in obtaining reliable statistics -- particularly on the number of cases and the profile of the parties involved -- my research concluded that the reforms generally succeeded. Active judicial case management and consistent application of the rules and case law were crucial to the success of the PCC.

The UK Intellectual Property Office, which should have better access to reliable data, is expected to publish its evaluation report on the PCC reforms this year.