Splitting trials: yes, it can be done -- when there's a good reason

British Gas Services v VanClare SE LLC (2015) is an extempore 17 June judgment of Mr Justice Arnold, sitting in the Intellectual Property Enterprise Court (IPEC) for England and Wales. While that court is technically part of the High Court, it's really the successor to the junior Patents County Court -- though High Court judges do occasionally sit in it.

This was an application by VanClare, the defendant in patent revocation proceedings brought by British Gas Services (BGS) to be transferred to the Patents Court, together with an application by BGS for its revocation claim to be heard before Vanclere's infringement claim.

In essence, in 2014 VanClare acquired a 2002 patent relating to prepayment utilities metering. VanClare granted an exclusive licence in respect of the patent to another entity controlled by the same person as VanClare.  That licensee then wrote to BGS (part of the UK government's smart metering implementation programme, SMIP), drawing the patent to its attention and suggesting that BGS took a licence. A letter before action followed.

SMIP involved the installation of 16 million meters by 2020 at a cost of approximately £600 million. When infringement proceedings were threatened, BGS issued revocation proceedings in the IPEC, alleging that the patent was obvious in the light of common general knowledge and prior art, not to mention added matter. VanClare had not served a defence. Soon afterwards, the exclusive licensee commenced infringement proceedings in the Patents Court, serving particulars of claim and particulars of infringement. At this point, VanClare sought the transfer of the revocation action to the Patents Court. BGS objected and said that the infringement claim should be stayed pending the outcome of the claim for revocation which, it said, was simpler and could be tried ealier and more quickly.

Mr Justice Arnold ordered that the revocation claim be transferred to the Patents Court so that it could be heard along with the infringement claim in accordance with the usual practice. In his view:

* so long as it did not appear that the revocation claim could be heard any more quickly in the IPEC than in the Patents Court, BGS did not oppose its transfer, since BGS just wanted the revocation claim to be heard before the infringement claim.

* the normal practice in the Patents Court was for validity and infringement to be tried together. That avoided the risk of inconsistent decisions on the interpretation of the patent if there were two hearings, and the possibility of delay inherent in a possible appeal against the decision on revocation.

* the court could order the issues to be tried in whatever order was convenient, if there was a good reason for doing so, and the onus on a party seeking to do things in a different order was not a heavy one -- but it had to be shown that that was the better way to proceed.

* while it was said that this revocation claim was simple to try, the issues were not so straightforward that an application for summary judgment had been made or even suggested. The revocation case was not unanswerable and would need a trial for its proper resolution.

* conversely, the infringement claim was said to be complex, not properly particularised and nowhere near ready for trial. However, the infringement claim could be elaborated if necessary in the ordinary way, and any deficiencies in preparedness could be dealt with by routine case management directions.

* bearing this in mind, differences in the relative complexity and readiness of the cases on the pleadings were not sufficient to justify the suggested bifurcation of the proceedings and there was no reason why the infringement claim could not be ready for trial with the revocation claim, especially since any delay would be prejudicial to both parties and the patent only had five years to run.

There are two sorts of bifurcation of patent proceedings: those where infringement is heard first, followed by revocation, and those (as was sought in this application) that go the other way round. This decision confirms that, while neither is normal in England and Wales, either is possible if the argument in favour of it is sufficiently persuasive. One wonders whether, following this clarification, more applications to hear one issue ahead of the other might be expected.

This blogpost is prepared from a note on the subscription-only Lawtel service.

"Invalid but Infringed?" A paper

"Invalid but Infringed? An Analysis of Germany’s Bifurcated Patent Litigation System", by Katrin Cremers, Fabian Gaessler, Dietmar Harhoff and Christian Helmers (a.k.a. Discussion Paper No. 14-072) is a must-read for anyone who wants to see the results of careful, painstaking research into the effects of handling infringement and validity in different courts within the same jurisdiction.  The authors' conclusions are as follows:

Overall, our results suggest that the German bifurcated patent system favors strongly the patent holder in litigation [It's good to know that the patent holder's investment and efforts are being protected ...]. We show that the bifurcated system creates a substantial number of cases where an invalid patent is held infringed [... but not if it's at the expense of innocent parties whose sole vice is to trespass on non-existent property]. We also provide evidence that fewer patents are challenged than what we would expect based on the consideration of litigation systems where infringement and validity are dealt with jointly. This means that the number of ‘invalid but infringed’ cases is presumably biased downwards due to self-selection [Indeed, a challenge to validity isn't made simply because a patent happens to be invalid but because it stands in the way of the would-be defendant's business plans. If the patent is enforced and invalidity is still some way off, a prudent business decision may involve changing one's business plan]. Our results also indicate that the possibility of facing an injunction for infringing an invalid patent creates legal uncertainty [This is true even in non-bifurcated systems with regard to interim injunctive relief]. We find evidence for such legal uncertainty by looking at changes in firms’ opposition behavior following directly a divergent decision. We find that alleged infringers that were subject to a divergent decision file more oppositions immediately following the court case.

Our results provide empirical support for the criticism that has been directed at bifurcation (Hilty and Lamping, 2011; Münster-Horstkotte, 2012) [This shows that the pro- and anti- debate takes place even in Germany, a significant point for those non-Germans who assume that all Germans are monolithically pro-bifurcation]. Given the probabilistic nature of patents, the strong presumption of validity that is at the core of Germany’s bifurcated enforcement system favors the patentee and creates uncertainty for potential infringers. That said, the problems revealed by our analysis should be compared to possible benefits of bifurcation – in particular, the impact of technically trained judges at the BPatG on validity decisions and the lower costs of litigation due to less need for technical expert witnesses [Though it should be possible to design a non-bifurcated system that makes more use of technically qualified judges and less use of technical expert witnesses, as is mentioned below]. Indeed, the costs of litigation in Germany are remarkably low compared to for example the UK [where this blogger likes to believe that costs have dropped substantially in the wake of better case management and the growth of litigation in the Patents County Court/Intellectual Property Enterprise Court], but technically trained judges could also be incorporated in a court system in which validity and infringement are decided jointly, as is the case in Switzerland (Ann, 2011). It is also possible that reforms that increased case loads at the BPatG and its appeal court, BGH, aggravated the problems during our period of analysis. Regardless, our results suggest that the current system is in danger of overly favoring patent holders. 

One way of addressing the problems highlighted by our analysis could be an acceleration of proceedings at the BPatG, thereby either avoiding the injunction gap altogether or trimming its length. This could allow attaining the benefits of bifurcation while avoiding the uncertainty created by ‘invalid but infringed’ decisions [this would be good]. Alternatively bifurcation could be abandoned altogether. While such a drastic step may look appealing to some observers, its impact would be uncertain. It might for example encourage forum shopping. If courts depend on the number of cases they hear for fee income, prestige, etc. patent holders might find themselves again at an advantage [This blogger feels that judges should be reminded that they should have no interest in fee income and prestige. They are only public servants and in doing their job properly tbey should put all extraneous matters like this aside]. In any case, we do not present a counterfactual analysis that would allow us to evaluate such a drastic step. Our analysis still suggests that bifurcation has considerable drawbacks, at least the way it is currently implemented in the German enforcement system.

Germany: bifurcation and best-buys

The Journal of Intellectual Property Law and Practice (JIPLP) published online earlier this week, for the benefit of subscribers to its electronic version, an article by Jochen Herr and Marc Grunwald (both of Field Fisher Waterhouse) entitled "Speedy patent infringement proceedings in Germany: pros and cons of the go-to courts". According to the abstract:

"Legal context. Due to the bifurcation of nullity and infringement proceedings in Germany, the infringement issue there is often resolved quickly.

Key points. This applies in particular as compared to other member states of the European Union. However, the various German first instance courts differ in the way cases are managed and in the average duration until judgment.

Practical significance. This article aims to provide insight into the three most important district courts dealing with patent litigation, thereby alerting the reader to what may be central issues in choosing a venue when litigating patents in Germany".

Non-subscribers can read this article by clicking here and scrolling down to "Purchase Short-Term Access". Articles in JIPLP are first published online, normally several weeks ahead of the printed version.

Hungary: infringement claim stayed following later patent challenge

In October the Hungarian Supreme Court ruled that, in patent infringement proceedings, a court must suspend the action if the Hungarian Patent Office has not reached a decision in subsequently-commenced patent revocation proceedings. In this case the trial court found that the defendant had infringed the plaintiff’s patent; the defendant appealed to the Metropolitan Court of Appeal on the grounds that he had initiated revocation proceedings in the Hungarian Patent Office. The Metropolitan Court stayed the infringement claim in a decision that was upheld by the Supreme Court.

The patent proprietor had emphasised in the appeal that the defendant not challenged the validity of the patent in the six years of infringement litigation and was deliberately stalling the proceeding. This was not however a significant issue in Hungary's bifurcated system for separating infringement and validity issues.

Source: Petosevic, citing this earlier post on the EPLaw Patent Blog by Eszter Szakács and Anna Sorosi ((Sár & Partners).