Tuesday, 29 March 2011

PCC Page 22: IPOff tells Cautious: “Get knotted"

The PatLit PCC Series, cunningly craft d by the Chartered Institute of Patent Attorneys (CIPA), seeks to explain how litigation works in the recently-revamped Patents County Court (PCC) for England and Wales, taking as its theme a dispute between Cautious Co and IPOff Ltd as to whether IPOff has infringed the IP rights of Cautious in its robotic octopus. In this episode, the 22nd, CIPA President Alasdair Poore reviews the strategic and other advantages of offering to settle the dispute before it goes too far ... 
"Cautious’s patent attorney has followed the advice on settling that was given last week, and considered carefully the question of making a Part 36 offer, a “Claimant’s offer", to IPOff. CPR 36 (“Part 36”) says that if the Claimant wins at trial at least as much as the offer it made, then it is entitled to enhanced interest on any damages and costs (CPR 36.14(1)(b) and (3)). 
Cautious’s patent attorney not unreasonably argues that this means that they can simply propose, in a Part 36 Offer, that the defendant meet all of Cautious's claim, and Cautious will be entitled to the costs and interest benefits of CPR 36.14. As a result he has sent the following, not very logical, proposal to IPOff’s solicitor by email:
“Dear X, we refer to the outstanding proceedings for patent and unregistered design right infringement against your client, IPOff. As you know, our client is seeking an enquiry into damages or (at its option) an account of profits arising from your client’s blatant infringement. 
We are now proposing, on behalf of our client, that your client concede that it has infringed our client’s patent and unregistered design and meet any damages or account of profits the court awards. This will save a lot of time and money, and we could make a deal on costs. Our client is willing to call it quits if yours agrees to this proposal. Please note that this offer is made under CPR 36, and our client will rely on the costs consequences set out in Part 36. The offer is open for 21 days only. After that we will pursue the claim with the utmost vigour.”
This letter illustrates all sorts of issues about how not to write when proposing “settlement”, including certainty as to what the offer really is – and it also illustrates some continuing problems for claimants in IP disputes who would like to rely on Part 36.

Part 36 was revised in 2006. It now expressly permits the Part 36 consequences (CPR 36.14(3)) to apply where the “judgment against the defendant is at least as advantageous” CPR36.14(1)(b) as the offer. This suggests that an offer on the same terms as if the claimant wins should have the CPR 36.14 consequences. However, I suggest that this is not an offer of settlement at all, and consequently does not qualify under CPR 36.2 for any of the benefits of CPR 36. This is a problem common to many IP claims – what offer can a claimant make (without knowing about all the infringements, which will often not be until an enquiry into damages)?

Can this be rectified by making a bigger claim (say for enhanced damages or aggravated damages – or publication of an apology) and then offering to settle for less? There would seem to be no reason why not – but more on that in a moment.

In order to qualify as a Part 36 Offer, the offer must comply with CPR 36.2 (including (a) being in writing, (b) stating on its face it is intended to have the consequences of Section I of Part 36, and (c) specifying a period of not less than 21 days within which the defendant will be liable for the claimant’s costs if the offer is accepted). It has been held that an offer only open for 21 days does not comply – the offer must be open until withdrawn by notice appropriately served. So Cautious’s offer would not in any event have been an offer under Part 36, because it expires after 21 days. Likewise, an offer which specifies the costs consequences would not be a Part 36 Offer, as that is inconsistent with Part 36, which sets out the costs consequences.

And the offer is made at the time it is SERVED (CPR 36.7). In this case, although email will qualify as writing, delivery by email does not qualify as service, unless service by email was acceptable – and most solicitors do not accept it – see CPR 6.20 and PD 6A, which set conditions before service by email is acceptable, even for documents other than Claim Form.

Note also that, if this had been effective as a Part 36 Offer, it is still open to the Court to refuse to give effect to the consequences, if “it considers it would be unjust to do so” CPR36.14(3), and in deciding on that, it must take into account the points in CPR 36.14(4). These include the terms of the offer, the stage of the proceedings, the information available to the parties, and the conduct of the parties in giving or refusing to give information to evaluate the offer. The effect of this seems to make it unlikely that, an offer which was made at a point (eg very early in the proceedings or when damages could not be assessed) would be given the full consequences – at least unless the other party provided much more information; and, where the only concession was very small, the Court might conclude that the other party could not reasonably have information to assess whether it was a meaningful concession.

Therefore one can get tied in knots over Part 36. It is very difficult to comment fully, not least because there are many decisions in areas totally remote from IP. For this reason I have not listed individual cases here – you need to look at the White Book, Black Book or a resource like PLC. This does not detract from considering it as a powerful weapon – encouraging parties to take offers seriously. The courts are not happy to see Part 36 being used to try to secure an unfair advantage but, where there is a meaningful proposal to be made, Part 36 should be considered. Even if it is not effective, a genuine (without prejudice save as to costs) offer must be taken into account in relation to costs under CPR 44.3.

A final warning. Part 36 offers do not behave like other offers in contract law: they cannot be withdrawn without leave during the first 21 days. Then they remain open until withdrawn by notice SERVED on the other party – which means that they are not revoked by a counter offer; or after a reasonable time; or even by rejection of the offer. So only make the offer if you know it can stay in place for 21 days, and keep it under review and withdraw it if it ceases to be appropriate (unless the CPR 36.14 benefits of keeping it in place still outweigh any change in circumstances)".
A consolidated list of the first 20 PCC Pages can be found here.

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