Fallacy buried as UK courts about-turn on damages for infringing invalid patents

The UK Supreme Court gave a very welcome judgment this morning in Virgin Atlantic Airways Limited v Zodiac Seats UK Limited (formerly known as Contour Aerospace Limited) [2013] UKSC 46, on appeal from [2009] EWCA Civ 1062.  The line-up was Lord Neuberger (President), Lady Hale, Lord Clarke, Lord Sumption, Lord Reed and Lord Carnwath.  According to the very useful Press Release from the Court:

BACKGROUND TO THE APPEAL 

Virgin obtained judgment from the English Court of Appeal (“the CA”) against Zodiac for damages to be assessed for the infringement of certain claims (“the relevant claims”) in a European Patent. The CA found their patent to have been valid and infringed by Zodiac. Subsequently, the Technical Board of Appeal (“the TBA”) of the European Patent Office (“the EPO”) ruled that that the relevant claims were invalid because they had been anticipated in prior art, and retrospectively amended the patent so as to remove, with effect from the date of grant, all the relevant claims. 

Virgin submitted that it was nevertheless entitled to recover damages for infringement because the CA’s conclusions - that the patent (including the relevant claims) was valid and that the relevant claims were infringed by Zodiac - were res judicata as between it and Zodiac on the subsequent assessment of damages, and that it was not open to Zodiac to reply on the TBA’s amendment to the patent, as this would be inconsistent with the orders made by the CA. That argument had succeeded before the CA in similar circumstances in previous cases, and the CA had followed those decisions in the present case. Zodiac’s case is that the unamended patent has been retrospectively amended, and that the relevant claims therefore no longer exist, and are deemed never to have existed. It submits that no issue of res judicata arises because that was not the situation considered by the CA. 

JUDGMENT 

The Supreme Court unanimously allows the appeal and declares that Zodiac are entitled to rely on the amendment of patent in answer to Virgin’s claim for damages on the enquiry. Lord Sumption gives the lead judgment, Lord Neuberger gives a concurring judgment, and the other members of the Court agree with both judgments. 

REASONS FOR THE JUDGMENT 

After a review of the law of res judicata [17-26], the Court gives two related reasons why Zodiac cannot be precluded from relying on the decision of the TBA on the enquiry as to damages. One is that it is relying on the more limited terms of a different patent which, by virtue of the TBA’s decision, must at the time of the enquiry be treated as the one that existed at the relevant time, whereas the unamended patent, relied on by Virgin, must be treated as if it had never existed. The second reason is that Zodiac is not seeking to reopen the validity of the relevant claims, which was one of the questions determined by the CA. The invalidity of those claims may be the reason the TBA amended the patent, but Zodiac is relying on the mere fact of amendment, not the reasons why it happened [27, 53, 54]. 

The CA reached a different conclusion because it followed a line of cases holding that a patentee, whose patent (in proceedings against a particular defendant) is found to be valid and infringed, is entitled to claim damages from the defendant for the infringement without regard to a subsequent revocation of the patent, even though as a matter of English law the revocation of a patent for invalidity relates back to the date of grant [28, 48]. 

The Court holds that this line of cases was wrongly decided. Their major fallacy is the assumption that cause of action estoppel was absolute generally rather than absolute only as regards points actually determined by the earlier decision. Accordingly, the decisions in those cases had no regard to the fact that the consequences of the patent’s subsequent revocation had not been, and could not have been, determined, or even taken into account, in the earlier decision, because it had not happened by the time of that decision. They were also wrong to suppose that, by taking into account the subsequent revocation, a court would be rehearing the question of validity decided by the judgment on liability. 

The revocation was a decision in rem determining the status of the patent as against the world [32, 48]. It had been revoked by the authority which had granted it and it must be treated as never having existed. The issue raised on the enquiry was not invalidity but revocation [32]. 

Accordingly, where judgment is given in an English court that a patent (whether English or European) is valid and infringed, and that patent is subsequently revoked or amended (whether in England or at the EPO), the defendant is entitled to rely on the revocation or amendment on the enquiry as to damages [35]. 

The Supreme Court also proposed that the current procedural guidelines laid down by the CA, which propose that the English court should normally refuse to stay its own proceedings if it would be likely to resolve the question of validity significantly earlier than the EPO, should be re-examined [38, 69].

An early comment on this decision comes from Hogan Lovells LLP, which states as follows:

• Lord Sumption's judgment states that the major fallacy of the previous line of cases was the assumption that cause of action estoppel was absolute generally, rather than absolute only as regards points actually determined by the earlier decision.  Since the consequences of the parallel revocation of a patent could not have been decided in these cases prior to the damages inquiry (since it had not happened), there was no true cause of action estoppel.  The inquiry would not be asked to rehear the question of the validity of the patent – rather deal with the consequences of its revocation ab initio.
  
  
• ...  this decision applies to the subsequent revocation of a patent both by the EPO and in England.  It therefore applies not only in cases with equivalent facts to the Virgin case (parallel UK and EPO proceedings between the same parties), but also where two parties separately attempt to revoke a patent and only the later action is successful (as in the Coflexip case).
  
  
• The Supreme Court heard argument on the comparable position in other European jurisdictions [an increasingly frequent practice, in keeping with the spirit of judicial comity which has recently spread though the European IP judiciary] but did not rely on comparative law in its decision.  Whilst it appears that there is no consensus across Europe, this decision brings UK procedure closer to that in Germany, where restitution is available, and into line with the position in France (where damages which have already been paid are not recoverable, but revocation of the patent prior to payment will extinguish the right on which the patentee bases his claim for damages).
  
  
• ... this decision does not impact on the general rule that, whilst a successful claimant is entitled to pursue an inquiry for damages even if there is a possibility of an appeal, He usually does so at his own risk as to costs if the decision on liability is reversed on appeal.  The situation in Virgin only bites once the appeals process has been exhausted, i.e. there is a final decision on liability.
  
  
• In addition, this decision does not change the position where a damages enquiry has been concluded before the patent is revoked.  In this case, the final judgment for damages will only fall to be challenged on appeal, if an appeal is still open.   Once the damages have been paid, the infringer would need to bring a claim in restitution to seek recovery of the amounts paid.  This is one of the reasons why the Supreme Court has asked the lower courts to review the procedural guidelines which currently suggest that English Courts should normally refuse a stay if the English Court would be likely to resolve the question of validity significantly before the EPO.