SDL wrongful threats case: counterfactual history reaps reward

Almost exactly a year ago, PatLit posted this item on SDL Hair Ltd v Next Row Ltd and others; Master Distributor Ltd v SDL Hair Ltd and others [2013] EWPCC 31, a Patents County Court, England and Wales, decision on, among other things, the making of unwarranted threats of to sue for patent infringement.

Now, in  which emanated last month from Mr Recorder Richard Meade QC. With so much going on, it got overlooked at the time -- but it's still worth noting. Now, in SDL Hair Ltd v Next Row Ltd & others [2014] EWHC 2084 (IPEC), an Intellectual Property Enterprise Court ruling of 3 July 2014, in a 98 paragraph judgment Judge Hacon addresses the question of quantum: how much damage was caused by the making of wrongful threats?  In this case, said the judge, the total loss was £40,500, a sum on which the defendant was required to pay a so-far-unspecified sum of interest.

The judge's decision incorporated his reconstruction of what might have been, had the wrongful threats not been made, by setting out what he termed a "counterfactual history" at paragraphs 54 to 72 of his judgment. While this counterfactual history is obviously highly fact-specific, the approach is one which might expect to see transferred to other situations in which ungrounded threats of patent infringement are made , thus guiding the innocent party's decision whether to sue for damages or not.

Threats made to a manufacturer to sue its customers can also be actionable

On Monday of this week PatLit posted this item on liability under UK patent law for making unwarranted threats to sue certain categories of persons for patent infringement. The same topic crops up again today in Sudarshan Chemical Industries Ltd v Clariant Produkte (Deutschland) GmbH [2013] EWCA Civ 919, a decision yesterday of the Court of Appeal for England and Wales consisting of Lords Justices Moore Bick, Kitchin and Floyd). While most of the appeal court's decision was taken up with other matters, its position regarding threats is its most interesting feature. The alleged threat consisted of this line in a letter:

"Certainly you will not be interested in continuously effecting a patent infringement, which may involve the most serious penalties to the infringer and his customers"

Was this an actionable threat? Kitchin LJ, speaking for the court, explained the issue succinctly at [116]:

"The letter undoubtedly constituted a threat to sue Sudarshan. But, as both parties accepted, this is not actionable because Sudarshan is the maker and importer of the product complained of, and s.70(4) [of the Patents Act 1977] makes clear that proceedings may not be brought for a threat in respect of its activities. The question to which this aspect of the appeal gives rise is whether the letter also constituted an actionable threat to sue Sudarshan's customers. Sudarshan says it did because it conveyed to Sudarshan that Clariant intended to sue its customers. Clariant says it did not because a threat must be communicated to the person threatened. Further, the scheme of the 1977 Act is to permit threats to be made to the primary infringer, and that is just what happened here: the threat was communicated to Sudarshan".

The Court of Appeal resolved this argument, as the trial judge (John Baldwin QC, sitting as a Deputy High Court Judge) had done, against Clariant. As Kitchin LJ said at [126], having reviewed the background to the current :

" ... A threat to sue a manufacturer in respect of his own activities is one thing. In a culture which encourages parties to discuss their differences before going to court, that is something with which he may be expected to cope. But a threat to sue his customers is quite another. A manufacturer may be very fearful of the damage this would cause to his goodwill and customer connection and so prefer to cease manufacture and sale altogether. A patentee may of course be prepared to sue the customers and if he does so the manufacturer must take the consequences. But Parliament may well have thought it wrong that if the patentee is not prepared to do so, perhaps because he knows it will damage his reputation too, that he should nevertheless be permitted to secure a commercial advantage by telling the manufacturer that that is what he intends to do".

Enough to make your hair curl: patent threats again

SDL Hair Ltd v Next Row Ltd and others; Master Distributor Ltd v SDL Hair Ltd and others [2013] EWPCC 31 is an interesting Patents County Court, England and Wales, decision on infringements and threats which emanated last month from Mr Recorder Richard Meade QC. With so much going on, it got overlooked at the time -- but it's still worth noting.

Essentially this action concerned two separate though connected cases and turned on two issues. One case related to SDL's heated hair rollers. MDL sued SDL and six other defendants, for infringing UK Patent GB 2 472 483. The second concerned SDL's claim that it had received letters that conveyed wrongful threats of patent infringement regarding the patent.

The court had to decide four things:

* Did MDL even have status to sue for infringement at all?  MDL said it was suing as an exclusive licensee under section 67(1) of the Patents Act 1977 -- but the patentee was continuing to deal in patented goods at the same time. Was that fact inconsistent with MDL having a legal right to exclusivity?

* Was the patent infringed? Everyone agreed that the heating in SDL's products depended on the current draw of the heating unit with a particular size of roller in it, and on the fixed heating time of the products.

* Were various letters which MDL sent SDL "groundless threats of infringement proceedings" under section 70 of the Patents Act, one of which was from MDL's solicitors and specifically mentioned patent infringement?

* Was Alan Howard (Stockport) Ltd --  the second-named defendant company in the infringement action -- the importer of the SDL products that it had bought? If that was the case, then threats made against that party would not be actionable by virtue of section 70(4) of the Act. As to whether Alan Howard (Stockport) Ltd was an importer, it appeared that shipping was arranged and paid for by SDL's Danish parent company, ID Hair Company -- in which case, if Alan Howard (Stockport) Ltd wasn't the importer, a threat against against it would be actionable.

How did Richard Meade QC, taking this action over from Colin Birss following the latter's elevation to the Patents Court, handle this? He ruled as follows:

* Starting with infringement, the judge saw no inconsistency between a patentee continuing to deal in patented goods and the grant of an exclusive licence. On the facts there was a real licence, not a sham: on its face it therefore complied with sections 67 and 120(7) of the 1977 Act. The fact that the patentee continued to deal in the patented goods was irrelevant. It followed that MDL was an exclusive licensee and was therefore entitled to sue.

* Since it was common ground that the heating in the SDL products depended on the way the current of the heating unit is drawn with a particular size of roller in it, and on a fixed heating time, neither of which involved a signal derived from monitoring the roller, neither of SDL's products infringed.

* Turning to the allegedly threatening letters, individually their various components cogency and, taking each by itself, would not constitute a threat. However, taken as a whole, the letters did clearly convey a threat. One was an urgent letter from solicitors that specifically spoke of patent infringement. The ordinary reader would have understood that the thrust of the letter was that some consequence was intended to follow, and that that consequence could really only be proceedings for patent infringement.  Accordingly each of the communications complained about amounted to an actionable threat under section 70 of the Act

* On the evidence, the combination of ID Hair Company paying for and arranging transport and the risk remaining with it until the goods reached the customer was enough to say that it and not the customer -- in the this case, Alan Howard (Stockport) Ltd  -- was the importer.

The judge managed all this with just two hearing days. The case provides yet another reminder of the need to be cautious about writing to an alleged or suspected infringer without incurring liability for making unwarranted threats.

Latest guidance on patent threats

Zeno Corp (Formerly Known As Tyrell Inc) & Another v BSM-Bionic Solutions Management GmbH & Another [2009] EWHC 1829 (Pat), a ruling by Mr Justice Lewison from the Patents Court, England and Wales, was delivered today. In a judgment that was focused far more on the issues of infringement and validity, there was an inevitably bias towards facts rather than law. However, the question arose as to whether the patent owner had made an unjustifiable threat to issue patent infringement proceedings, after some Boots retail outlets received a somewhat unusual communication (described below).

The "threat" in this case looks like one of those instances where the dictionary meaning of a word and its legal meaning lean in different directions. Of the letter which constituted the alleged threat, the judge says, at paras 96 onwards:

"i) The letter did not mention proceedings or explicitly threaten them;

ii) The letter asserted that "up to this point" the writer could see no difference in the technical solution; but contained a request for the reason why the recipient thought that it need not "take into consideration" the patent;

iii) The writer of the letter was not an English lawyer to whom the conduct of proceedings about patent infringement in England would usually be entrusted.

iv) On the other hand, the letter was not addressed to the manufacturer of Zeno, nor even to Boots head office. It was sent to the stores that were actually stocking the product.

The packaging in which the Zeno product was sold displayed the name and address of the manufacturer in Houston Texas and its UK distributor.

The writer of the letter knew who had manufactured the Zeno device; who had imported it and who was offering it for sale. So the purpose of the letter cannot have been to discover who was infringing the patent (if indeed it was being infringed).

Was the "sole purpose" of the letter to discover whether the patent had been infringed? If the writer of the letter were genuinely concerned to ask about some technical characteristic of the Zeno device that would point out a difference between that device and the device described in the patent the obvious person to write to would be the manufacturer. Why should the retailer know the technical details of what it sold? And even if the retailer did know, surely the relevant person would be someone in head office responsible for Boots' corporate decision to stock it rather than any individual store manager. Why, then, were the letters sent to the retailers? The only answer must be to persuade them to stop selling the Zeno device. It partially succeeded in that objective. In my judgment that means that it cannot be said that "the sole purpose" of the letter was to discover whether the patent had been infringed.

It is true that the letter made assertions about the patent; but it also made assertions about the Zeno device.

Mr Burkill objected that no evidence had been called from Boots to show how they interpreted the letter. I do not think that matters. In Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] A.C. 749 the question was whether a notice given by a tenant to a landlord was valid to terminate a lease. Lord Steyn said:
"The question is not how the landlord understood the notices. The construction of the notices must be approached objectively. The issue is how a reasonable recipient would have understood the notices; and in considering this question the notices must be construed taking into account the relevant objective contextual scene."

In my judgment the same applies here. It is not a question of how Boots understood the letter; but how a reasonable person in the position of Boots would have understood it. Read in context, through the eyes of a retailer, the letter amounted, in my judgment, to a veiled threat of infringement proceedings.".

The judge appears to have got it right here, but the Patents Act 1977, s. 70, which deals with threats, has never been particularly easy to apply. PatLit wonders if it would be helpful if the Intellectual Property Office posted a set of general guidelines, based on judicial rulings, that litigators can refer to, perhaps also with actual examples of letters to suspected or alleged infringers that have been found to constitute threats and those which have not.