Tuesday, 25 October 2011

PCC Page 42: Octopus-watching continues: giant squid v small fry .. and the prospect of settlement

Incipiently inspired by the Chartered Institute of Patent Attorneys (CIPA), the PCC Pages seek 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 42nd, former CIPA President Alasdair Poore returns from his grand tour of the United States and regales us with some thoughts on the prospect of settlement:

Cautious and Co are still keeping a watching brief on the Patents County Court while their claim moves gradually on.  A couple of cases, one unreported, illustrate smart and not-so-smart ways of using the Patents County Court.

Liversidge v Abbott Laboratories (or maybe Abbott Laboratories v Liversidge,  unreported), illustrates a smart approach: Be selective about the relief sought, and make the PCC an attractive forum for both parties.  The case involved Abbott’s best selling drug, Humira, used in injectible form for the treatment of rheumatoid arthritis.  Liversidge alleged that an injector used for administration of the drug infringed a patent which he had recently been granted (EP 2067496).  Abbott dispute this and sought revocation of the patent.  The case could have answered one of the questions posed earlier in the PCC pages: what happens if parallel cases are launched in the PCC and the Patents Court almost simultaneously? 
In this case Abbott issued proceedings in the Patents Court for revocation and Liversidge issued proceedings in the PCC for infringement.  The cases could not have got closer: they were commenced on the same day and had received consecutive claim numbers on issue – the claim in the PCC having been issued in the Royal Courts of Justice (Chancery Registry) (section 2.2 PCC Guide).  Liversidge said that he would not be able to contemplate proceedings in the High Court because, if he lost, he would be bankrupt.  On the other hand Abbott contended that proceedings relating to infringement of one of the world’s leading drugs were hardly appropriate to the PCC.  Initially the parties could not agree even on which forum should hear a transfer application; Judge Birss QC therefore invited an application for transfer in the PCC.

Before the hearing, however, the parties reached a very pragmatic decision:  Liversidge agreed with Abbott that he would not seek an injunction in relation to the infringement claim, and that damages should be awarded as a reasonable royalty, this being based on the value of the syringe component, without including the value of the drug in the syringe.  On this basis Abbott was willing to have the case heard in the PCC.  This seems to be a victory for common sense.

It might be noted that the case was started before the damages limit was introduced in the PCC, and such a solution might be more difficult now.  But a bit of imagination might be engaged to ensure that the damages limit does not present a practical barrier – by agreeing to waive the limit or possibly to agree an alternative limit or approach to calculation, or by settling for some damages being better than none.

The second example, Martin Moore v Mark Plant Ltd [2011] EWPCC 25, was not such a happy case.  It involved alleged infringement of a Community registered design for a door knob (000908272-0001).  An incidental part of the decision is what is (or in this case, is not) behaving “unreasonably” such that the court should make an order for costs at the conclusion of the hearing.  Such an order would mean that those costs would be outside the scope of the cap on costs.  The case also illustrates the desirability of putting an explicit time limit on settlement offers or at least monitoring them to ensure that an offer is formally withdrawn when it should not longer be applicable – otherwise you could end up in a seemingly pointless hearing on whether a settlement has been reached.

The background was that the defendant made an offer of settlement on 3 May 2011.  Given that they had apparently dealt in only 88 knobs, and were happy to undertake not to deal in them in the future, this seemed rather sensible.  That offer was continually declined over a few weeks.  Then, on 19 May 2011, the defendants, having found some critical prior art, filed a defence and counterclaim, and telephoned the claimant’s solicitors to say (among other things): “If his client did not discontinue the proceedings forthwith, our client would be forced to incur significant costs, which our client would seek to recover from the Claimant on an indemnity basis.”

A week later, on 26 May 2011, the claimant’s solicitors purported to accept the offer.  A hearing was necessary on this.  Judge Birss rejected the argument that the settlement offer was still open to settlement, saying:
“it is absolutely plain that by 26th May circumstances had changed. … In my judgment the correct approach is to take an objective construction of what was going on.  To an objective party in the position of the Claimants, seeing what was emanating from the Defendants over the series of events from 16th, 17th and 19th, but in particular the 16th and 17th, it would have been clear that the Defendants had by then withdrawn the offer that they were making to settle these proceedings on the previous basis.”
In a final twist, the defendants applied for costs under CPR 63.26.  Readers will recollect that this provides that “Where a party has behaved unreasonably the court will make an order for costs at the conclusion of the hearing”; and that such costs are not counted in the capped costs for the proceedings as a whole (CPR 45.43).  To the frustration of the defendants Judge Birss QC decided that the fact that an objective (reasonable) party would have concluded that the offer had been withdrawn (and therefore that there was no settlement) did not mean that it was unreasonable to argue the point.  CPR 63.26(2)
“is concerned with the behaviour of the parties in terms of the behaviour of the process of the court, and that is different from making assessment in relation to the objective construction of the parties' intentions”. 
Presumably it would be necessary to show something like no reasonable party would have concluded that such an argument could succeed.

The decision, illustrating that the jurisdiction to award “off scale costs” will be exercised only when there is behaviour in the proceedings which is unreasonable, is welcome.  However, it is all too easy to see that this could be a recipe for cost wasting activities which are “just arguable”.  However, if such conduct happens repeatedly in a case, perhaps it is then possible to argue that such conduct is an abuse on the basis that it is contrary to the overriding objective (CPR 1.1(2)(b) and (c)): costs in such a case will clearly cease to be proportionate.

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