Friday 28 January 2011

"Damages for infringing invalid patents": a comment

The following comment has been received in response to Wednesday's thoughtful and provocative piece on the availability of damages for the infringement of a patent which is subsequently held invalid.   Blogger's Comments only allow for responses of up to 4,096 characters, which meant that this comment was too long to append to the original piece.  However, it is too valuable a contribution to the debate to be lost so it is reproduced here in its entirety.  The author has asked to remain anonymous though his identity, like the originator of Wednesday's piece, is known to PatLit.  He writes:

"The fact that this issue gives rise to such strong feelings and heated exchanges is clear evidence that it is an issue which needs to be resolved once and for all by the Supreme Court, and that opportunity may arise later this year in Virgin v Premium.

In the meantime, there are a few misconceptions which need to be addressed, and a few points of law which are not as clear as some people think…

First, let us get one thing quite clear at then outset. There is no correlation between the position of a licensee who has paid royalties and an alleged infringer who has had to pay damages.

The licensee enters into a deal. He chooses not to challenge the patent, but rather to pay for the ease of using the technology “unthreatened” by possible action by the patentee. The alleged infringer chooses the other course – to challenge the patent, saying “come and sue me” to the patentee, on the basis that he does not think the patent applies to his product or process, either because of non-infringement or invalidity or both. If he loses in court, the obligation to pay damages is imposed on him.

If the patent is subsequently found to be invalid, the “infringer” is proved right, and should not, in any just system, be obliged to pay for committing an act which was not, at any time, unlawful. The licensee, who has chosen to nail his flag to the patentee’s mast, will have had the benefit of his royalties, and can now also have the benefit of the “infringer’s” action.

Secondly, patents are a complication for the law of res judicata, even before any European factor is taken into account. In almost all cases, the principle of res judicata makes perfect sense. Once a matter has been litigated at court, the final judgment should be unassailable unless compelling evidence which was not available beforehand comes to light.

However, in patent law, if a patent is found to be invalid, or amended, then the effect of the invalidation or amendment is retrospective. The patent is deemed never to have existed, or always to have existed in its amended form. The problem this creates is obvious. The courts have approached in different ways. In Poulton, Coflexip and Unilin a strict compliance with basic principles of res judicata has been applied. However, in Dudgeon v Thompson, Kenrick & Jefferson, and PLG v Ardon a totally different approach was adopted. In PLG Aldous J said clearly:
“The practice of this court is that, after amendment, a patentee must start a fresh action rather than seek to enforce any relief he has obtained in a previous action (emphasis added). The practice is based upon the fact that there has been no judgment on infringement and validity in relation to the amended patent”
This passage illustrates precisely the point made above, that patent actions challenge the usual basis of the principle of res judicata. Those who support Unilin say simply of this passage from Aldous J that “he was wrong”. That is hardly an answer, and demonstrates precisely why this is a matter which needs to be resolved by the Supreme Court. It is worth noting that Dudgeon v Thompson is a House of Lords decision.

All of this becomes even more confused when the European angle is taken into account. In 1977 the United Kingdom adopted a new patent system which accepted the involvement of the European Patent Office and the European Courts. One effect of this is that the final arbiter on validity is the European Patent Office. At least as far as findings of invalidity are concerned, the EPO Boards of Appeal “trump” the UK court in an irreversible manner.

Bearing in mind that the principle of res judicata is based on finality – in other words that all avenues in the UK courts have been exhausted, how can a decision be truly res judicata in the UK courts if there is still recourse to the EPO? For these purposes the EPO must be seen as being within the UK system. That is how the system works. When a patent case reaches its conclusion in the UK, it will be known whether there are pending opposition proceedings in Munich – that is the way the timetable works. Where it is clear that such proceedings are underway, then no decision of the UK court can be truly final. Accordingly, the principle of res judicata is not in play.

It is no argument to say that infringement and validity are separate issues. That is not how our system works. We have not opted for a bifurcated approach as the Germans have.

What then is the rationale for Unilin? A simple uncomplicated reading of the decision, and the decision to refuse a stay in Virgin v Premium reveals that the motive of the Court of Appeal in both cases was not the upholding of the ancient principle of res judicata (which demonstrably does not apply), but rather “commercial convenience” and the avoidance of the “emasculation” of the UK courts by having the effect of their decisions delayed pending an EPO decision.

There may, just, have been some merit in that in the days when EPO proceedings were desperately slow, with no hope of expedition, though it was nonetheless a clear example of “bending the law out of shape” to achieve a commercial result. That is no longer the case. As Lord Justice Jacob himself has repeatedly asserted, if the courts and the parties engage with the EPO, it is possible to accelerate proceedings to avoid unhelpful longueurs.

In fact, in the Virgin case the Court of Appeal made its decision not to stay a damages enquiry at a time when the final decision of the EPO was barely three months away.

Put simply, the “evil” which Unilin sought to address is now no more than a memory, and it is a poor excuse to bend both the law, and perceived justice out of shape. I emphasise justice because no lay reader of this exchange would understand a position where a company or individual was obliged to pay very substantial “damages” in relation to an allegation of infringement of a “right” which either never existed at all, or only existed in a form which was not infringed by the alleged “act of infringement”. On the contrary, he may be somewhat surprised at the apparent reward for a patentee who pursues, and is willing to accept reward from a patent which is invalid. Surely that is contrary to public policy?

To test this one step further, look at other European jurisdictions? They also accept the primacy of the EPO, but find other practical means to avoid this situation arising. I do not propose to labour the points here, but suffice to say that the Unilin type of situation simply cannot arise on other major EPC jurisdictions.

A follow up message on this blog says “you have to define a time after which it is too late to get your damages back”. That actually poses the wrong question, but can simply be answered in this way. In cases where there are pending EPO opposition proceedings, that time is the final expiry of those proceedings. That is when there is finality under the UK legal system, and consequently when the principle of res judicata applies.

The situation where, in subsequent proceedings in the UK courts the patent is revoked as a result of new prior art, can be answered by saying that the party who paid damages had their chance to find that prior art and failed".

9 comments:

Anonymous said...

Another point on the same lines. Only a couple of years ago the Court of Appeal accepted that there is now a new exception to the rule in Young v Bristol Aeroplane Company - it can overrule its own previous judgments if that reflects an established line of authority in the EPO. In that case the Court of Appeal explicitly accepts the integration of the UK court system and the EPO. How can that not apply in the context of Res Judicata?

The Bright Spark said...

This argument considers only the case of an EPO revocation, and does not consider the case where the patent is revoked in subsequent English High Court proceedings, perhaps years after the first proceedings. The answer given to my point that “you have to define a time after which it is too late to get your damages back” has no relevance to the latter type of case.

Anonymous said...

Bright Spark - the last paragraph seems to answer your point. The author seems to be saying that in the event of later invalidation by the UK court, "fairness" would have been met in that the party paying damages had their chance to invalidate and failed. He seems to be limiting the argument to the EPO opposition scenario, as that deals with the res judicata point.

Bystander commentator said...

These comments are interesting, but I think fail to recognise that two different matters are involved. The role of the EPO is solely to decide whether an EPC patent should be granted and, if so, in what form. On the other hand, questions of the validity and infringement of a granted European patent are solely matters for decision by national courts and, in particular, such courts are not required to treat the patent as having been validly granted. The position in the USA is apparently at least prima facie different because a presumption of validity upon grant is there expressly stated in the statute wording. In Europe, these questions have to be settled on the position of the parties at the date of issue of the complaint to a national court, even if the patent is then being challenged by further EPO proceedings.

I here note that EPC art.67 provides for provisional (and apparently possible temporary) relief on a pending application. However, if the EPO eventually denies grant, a national court may already by then have given a decision that invalidity has not been proved and that infringement has occurred. It can therefore then decree an appropriate penalty for matter arising up to the date of EPO cancellation of the already granted patent right. I note that EPC Art 67 does not say that any such infringement decision already made is thereby over-ruled. The EPO revocation decision merely precludes any further action and renders any injunction then in existence to lose its existence from the date of the decision.

The Bright Spark said...

Anonymous - I don't understand the logic behind that last paragraph:

1. What about if the EPO revokes on the basis of prior art not found by the original defendant?

2. What if the national court revokes on the basis of prior art which the original defendant did find?

3. Bearing in mind the foregoing questions, what is the rationale for distinguishing between (a) revocation by the EPO and (b) revocation by the national court (or revocation of a GB patent by the UK IPO)?

Anonymous said...

Some responses to this post [Part 1]

There is no correlation between the position of a licensee who has paid royalties and an alleged infringer who has had to pay damages.

Just to be clear, there is no such thing as an “alleged” infringer who has had to pay damages. If damages have been awarded, then there has been a decision and the payee is an infringer. It is quite right that there is no correlation in this case, because the licensee pays not knowing whether the patent is valid or not, whereas the infringer is estopped from denying the validity of the patent.

If he loses in court, the obligation to pay damages is imposed on him. If the patent is subsequently found to be invalid, the “infringer” is proved right, and should not, in any just system, be obliged to pay for committing an act which was not, at any time, unlawful.

This does not follow . The whole point of res judicata is that it prevents the same issue being relitigated between the same parties. The issue of validity as between patentee and infringer can never be relitigated and the initial decision can therefore never be proven wrong. All that happens here is that the losing infringer gets a windfall benefit from the demise of the patent. As to the infringer being proven “right” – not so: the decision stands, and all that is proven is that the infringer could have got a better result if it had defended the case better (or the patentee had fought it less well).

In PLG Aldous J said clearly: “The practice of this court is that, after amendment, a patentee must start a fresh action rather than seek to enforce any relief he has obtained in a previous action (emphasis added). The practice is based upon the fact that there has been no judgment on infringement and validity in relation to the amended patent” This passage illustrates precisely the point made above, that patent actions challenge the usual basis of the principle of res judicata.

This is a misreading of Aldous J. There is no challenge here to the principle of res judicata, but just a comment on the absence of any res when the issue it decides has been rendered irrelevant because the right over which it adjudicated has disapperared. The same principle applies to EPO judgments.

Anonymous said...

Some responses to this post [Part II]

Where it is clear that such proceedings are underway, then no decision of the UK court can be truly final. Accordingly, the principle of res judicata is not in play.

Again, this is simply not the case. A decision of the UK court to award an injunction and damages is a final decision. The injunction will be permanent – although the effects obviously will not be in the face of later revocation because an order not to infringe cannot be breached in respect of a right that no longer exists. A summary award of damages, or an inquiry resolved before the EPO decision is finalised, would unquestionably be irreversible and thus final. There is no point of principle to say that merely because the inquiry as to damages is not run quickly, it should be reversed.

One can equally ask whether an infringer who breaches an injunction in respect of a later-revoked patent should be committed for contempt, or, if already committed, recompensed for an improper punishment. The correct answer is no: the court is entitled to ensure that those charged to behave in a specified manner do not take it into their own hands to act otherwise in the hope of a later redemptive turn of events.

There may, just, have been some merit in that in the days when EPO proceedings were desperately slow, with no hope of expedition, though it was nonetheless a clear example of “bending the law out of shape” to achieve a commercial result. That is no longer the case.

We must be dealing with different EPOs. If you await finality from the EPO before starting here on a patent which has been opposed, it will be impossible for most patent disputes to achieve any form of justice. This is an oppositionists charter.

I emphasise justice because no lay reader of this exchange would understand a position where a company or individual was obliged to pay very substantial “damages” in relation to an allegation of infringement of a “right” which either never existed at all …

By definition, we are here dealing with rights the nature of which is not easily determined. Bear in mind that the round 1 infringer had the chance to challenge the right, and lost. Looked at in that way, one can see that actually the position is harsh on the patentee since no res judicata can make sure that the patent is in fact found to be valid: in other words, the patentee has to win every time, and the challengers only once.

Also bear in mind that you can here draw a very clear analogy with the licensing position. If you cannot understand damages being awarded against a company in this position, you should also find it impossible to understand why the company would have signed up voluntarily to a licence. And there is the key. The system works because the uncertainty of validity is priced into dealings. A shift that favours unravelling done deals – whether in contract or in court – fundamentally alters the balance and collectively devalues IP. Which is why Jacob LJ was right.

Anonymous said...

The two part response is entirely typical of one who puts the law before justice. It seems fruitless to answer each point individually. It seems more likely than ever now that the Supreme Court will take a look at this later in the year, and matters can be resolved then. Suffice to say that Jacob LJ, in a hearing only this week, indicated that res judicata led to injustice - indeed he went as far as to say that that was the point of it! However, others in the same court achnowledged that it is the one of the jobs of the courts to narrow the gap between the law and injustice when such a gap arises.

There is a lot of talk about "fairness to patentees". A patent is a government endorsed monopoly and not something to be undertaken, upheld or enforced lightly. Patents are vital to encourage innovation, and it is to the detriment of the patent system as a whole if rank injustices like the Unilin/Virgin situations are allowed to occur. A simple stay was all that was needed in Virgin v Premium to avoid the whole issue arising - a sty of a mere three months as far as the court was aware at the time.

Anonymous said...

Judges like to finalise points of law to create certainty. Determining that damages need not be paid because of a finding of invalidity in a later case, will open the can of worms as discussed in the initial comments. I can't see the position changing.
(I haven't read the Virgin case)