Wednesday, 26 January 2011

Damages for infringing invalid patents: a question of symmetry?

Earlier today a short comment on the IPKat weblog mentioned an article on the awarding of infringement damages where the infringed patent was subsequently held invalid.  This sparked off an exchange of views which has led to the posting below of the opinion of a distinguished patent practitioner whose identity has been withheld.  The author writes:
"In 2004, the Court of Appeal for England and Wales held in Coflexip v Stolt that once a defendant had been found liable for infringement, it would still be liable to pay damages (when eventually assessed) even if the patent was held invalid in later proceedings with a (necessarily) different defendant. Subsequent cases, most recently the Virgin Atlantic v Premium Aircraft case, have reviewed this decision which remains part of English law. The cases have recently been reviewed in an article in MIP (MIP, Dec/Jan 2011 p20, Evans et al).

This author's view is that the approach in Coflexip is undoubtedly the correct one. While the proposition may seem surprising, it is in fact entirely consistent with fairness in patent system. There are a variety of approaches that lead to this conclusion.

"In particular, I find symmetry a convenient tool by which to assess fairness. In Jeremy's scenario, there is no symmetric treatment of the parties - the first defendant would obtain multiple bites at the "damages cherry" until the patent is invalidated, whereas the patentee has no second chance once invalidity has been found. Turn the Tribunal B and A decisions around, and it is clear that as the law stands, tribunal A cannot hold the patent valid after tribunal B has held it invalid because once that has happened it is curtains for the patentee. So if the patentee is going to be fixed with finality, it is only fair that the same should apply to defendants.

In fact, of course, a defendant does benefit under the present system because while the damages liability remains - dealing with a crystallised liability in the past - the injunction into the future is nugatory because there is no longer a patent capable of being infringed. So the defendant already has had a leg up and doesn't need more.

It might pay the defendant in Tribunal B to drop the counterclaim for revocation and just pursue the invalidity defence. No inconsistent decision can then be created, and the B defendant is not placed in the invidious position of getting the A defendant off the hook by doing a better legal job. On the other hand, the scenario Jeremy preferred above is one that rewards the first defendant for the risk and expense borne by the second defendant and provides the patentee with no finality in litigation. It provides the first defendant with a second bite at the cherry that is not available to the patentee. It incentivises the first defendant to delay settlement or refuse to settle.

The key point in Coflexip is that the decision on damages is already a done deal. The only remaining question is quantum and it is just a question of timing and convenience that quantification of the liability is delayed to a later date. In other words, the damages inquiry is properly seen as teasing out the detail of an accrued right, and not deciding on new rights.

Which, in short, means Coflexip was rightly decided. Patent validity as a relative concept is already deeply embedded in the law - it is why there is no repayment of licence fees, settlement payments or accrued damages following a finding of invalidity. The risk of a patent being valid or invalid is a variable that is factored into all dealings with patents, and rightly so. It creates a value spectrum leveraging the perceived likelihood of validity, from rights that look decidedly dodgy and are valued and treated cheaply, to rights that look as good as you get and are valued highly. If payments were subject to retrospective correction after an actual finding of invalidity, then that raises risk and cost for the patentee which will tend to raise the immediate price for licensees for dealing with the patent, and thus make agreement more difficult to achieve and litigation more likely. It would be no more constructive to argue that historic payments should be retrospectively raised following a finding of validity, because the previous probabilistic assumptions about validity are resolved. The system is far better to stick with the treatment as is".
 Readers' thoughts and comments are keenly awaited.


The Bright Spark said...

You have to define a time after which it is too late to get your damages back, even if the patent is revoked later. Otherwise you could have defendants seeking to recover from patentees years and years after they paid their damages.

The only logical and fair date is the date on which damages are ordered to be paid (even if the amount to be date is left to be determined later).

Norman said...

I'm inclined to think Coflexip was correctly decided, for reasons of finality, even apart from the fairness considerations raised in the post. But it does make me wonder about analogous situations outside patent law. I understand that News of the World intends to bring an action to recover the £200,000 awarded to Sheridan as a result of his perjury. It also seems right me that NoW should recover - but what exactly is the distinction between the two? Perhaps it is that the fraud affected the prior proceedings themselves. This implies that damages awarded in a patent action might be recovered if, e.g. the finding of validity had been based on some kind of misconduct in the litigation by the patentee, perhaps 'fraudulent' concealment of prior art.

Anonymous said...

Further to Norman's remark, I believe that the NotW position follows the case law in the earlier Jeffrey Archer "saga" (he with the fragrant wife).

Anonymous said...

I´m not sure if there should be a "too late" time for getting damages back...

I was checking this site called and they specified exactly that...

Good post guys!

Anonymous said...

Having read the learned Blogs with great interest I would like, if possible views on the following: A Company owns a patent that that was applied for in 2002. The inventor was dismissed from the Company some 4-years ago for purported fraud. He had been working on the product for at least 8-years prior to taking out the Patent in 2002. In 1994 product was sold in the market place by at least one large well- know retailers although the 2002 Patent itself, detailed a slightly different product to that previously sold. In 1997-8 the inventor instructed a Company to supply a product similar to the end product. However the supply Company proceeded to take a Patent out itself in 1998, having first invited a major public Company, to join forces in its application. By and large this Patent replicated a product almost the same as that of the inventor it had been producing product for. On being made aware of the patent application by the Inventor in 2002, the manufacturing Company sent letters pointing out that it already had a Patent covering the product the inventors patent purported IPR on. The inventor immediately challenged the letter saying that the prior-art had been stolen from him by its other partner. The inventor then produced evidence of his prior art which caused the major public Company partner to walk away, having taken legal advice. The left the other partner as sole owner. By accident, the then ex-partner continued to pay patent fees for approx 6-years, after which it stopped which resulted in the Patent Office cancelling it. A year or so later, after the Inventor was dismissed from the Company which owned the Patent, he approached the sole owner of the Patent that had been cancelled for non-payment and colluded with him to approach the Patent Office with the story that non-payment of the Patent was a mistake and as such could they reinstate it. They did. Since then it has been sold/passed on to another Company which has threatened to take legal action and claim damages against the major supplier of the product covered by the 2002 Patent. No product had been made up until the 1998 patent had been resurrected in 2009. Directly the new Company took-over the Patent it started making product and the threats started in earnest a few months thereafter. Since when then however more evidence of prior-art has come to light showing several major companies in America had been granted Patents on the same technology many years before 1998. As such is it correct to assume this not only renders the 1998 patent invalid but also puts a question mark over those who are threatening the action?

Anonymous said...

Virgin Atlantic now says otherwise