Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd [2013] UKSC 46 (3 July 2013)

Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd [2013] UKSC 46 (3 July 2013) was the Supreme Court's (Lord Neuberger (President), Lady Hale, Lord Clarke, Lord Sumption, Lord Reed, Lord Carnwath's) opportunity to rule that the proprietor of a patent which is declared invalid cannot hang on to damages recovered for an infringement of it. Or, to put it another way, a defendant can rely on the subsequent amendment of patent claims to relieve them from liability for damages, which certainly sounds right. A bit of a bifuracation problem - the patent was held valid in the English courts but invalidated by the Technical Board of Appeal in the EPO. For speed, here is the Supreme Court press release:

BACKGROUND TO THE APPEAL

Virgin obtained judgment from the English Court of Appeal (“the CA”) against Zodiac for damages to be assessed for the infringement of certain claims (“the relevant claims”) in a European Patent. The CA found their patent to have been valid and infringed by Zodiac. Subsequently, the Technical Board of Appeal (“the TBA”) of the European Patent Office (“the EPO”) ruled that that the relevant claims were invalid because they had been anticipated in prior art, and retrospectively amended the patent so as to remove, with effect from the date of grant, all the relevant claims.   

Virgin submitted that it was nevertheless entitled to recover damages for infringement because the CA’s conclusions - that the patent (including the relevant claims) was valid and that the relevant claims were infringed by Zodiac - were res judicata as between it and Zodiac on the subsequent assessment of damages, and that it was not open to Zodiac to reply on the TBA’s amendment to the patent, as this would be inconsistent with the orders made by the CA. That argument had succeeded before the CA in similar circumstances in previous cases, and the CA had followed those decisions in the present case. Zodiac’s case is that the unamended patent has been retrospectively amended, and that the relevant claims therefore no longer exist, and are deemed never to have existed. It submits that no issue of res judicata arises because that was not the situation considered by the CA.

JUDGMENT

The Supreme Court unanimously allows the appeal and declares that Zodiac are entitled to rely on the amendment of patent in answer to Virgin’s claim for damages on the enquiry. Lord Sumption gives the lead judgment, Lord Neuberger gives a concurring judgment, and the other members of the Court agree with both judgments. 

REASONS FOR THE JUDGMENT

After a review of the law of res judicata [17-26], the Court gives two related reasons why Zodiac cannot be precluded from relying on the decision of the TBA on the enquiry as to damages. One is that it is relying on the more limited terms of a different patent which, by virtue of the TBA’s decision, must at the time of the enquiry be treated as the one that existed at the relevant time, whereas the unamended patent, relied on by Virgin, must be treated as if it had never existed. The second reason is that Zodiac is not seeking to reopen the validity of the relevant claims, which was one of the questions determined by the CA. The invalidity of those claims may be the reason the TBA amended the patent, but Zodiac is relying on the mere fact of amendment, not the reasons why it happened [27, 53, 54].

The CA reached a different conclusion because it followed a line of cases holding that a patentee, whose patent (in proceedings against a particular defendant) is found to be valid and infringed, is entitled to claim damages from the defendant for the infringement without regard to a subsequent revocation of the patent, even though as a matter of English law the revocation of  a patent for invalidity relates back to the date of grant [28, 48]. 

The Court holds that this line of cases was wrongly decided. Their major fallacy is the assumption that cause of action estoppel was absolute generally rather than absolute only as regards points actually determined by the earlier decision. Accordingly, the decisions in those cases had no regard to the fact that the consequences of the patent’s subsequent revocation had not been, and could not have been, determined, or even taken into account, in the earlier decision, because it had not happened by the time of that decision. They were also wrong to suppose that, by taking into account the subsequent revocation, a court would be rehearing the question of validity decided by the judgment on liability.

The revocation was a decision in rem determining the status of the patent as against the world [32, 48]. It had been revoked by the authority which had granted it and it must be treated as never having existed. The issue raised on the enquiry was not invalidity but revocation [32].  

Accordingly, where judgment is given in an English court that a patent (whether English or European) is valid and infringed, and that patent is subsequently revoked or amended (whether  n England or at the EPO), the defendant is entitled to rely on the revocation or amendment on  he enquiry as to damages [35].

The Supreme Court also proposed that the current procedural guidelines laid down by the CA,  which propose that the English court should normally refuse to stay its own proceedings if it  would be likely to resolve the question of validity significantly earlier than the EPO, should be re-examined [38, 69]. 

Force India: breach of confidence, but no more damages

Force India Formula One Team Ltd v Aerolab Srl & Anor [2013] EWCA Civ 780 (03 July 2013)  is perhaps the judicial equivalent of being relegated to the back of the grid after being found to be 1.5 kg overweight. Certainly it's a second, arguably self-inflicted, misfortune in only a few days to be visited on Force India, who nevertheless are knocking ever harder on the door that leads to the front end of grand prix motor racing.*

The appeal was from a judgment of Arnold J, ([2012] EWHC 616 (Ch) (21 March 2012)) who had awarded Force India damages which failed to meet the team's claim, falling short by three orders of  magnitude. The Court of Appeal dismissed the appeal: the award was proportionate and dissuasive (amounting to the profit made by the defendants). Interestingly Lewison LJ said he was "sceptical" about whether the enforcement directive applied to breach of confidence actions, though even if it did he did not think the award breached the directive.

The dispute dates back to August 2009, when the defendants started to work for Team Lotus, which began campaigning in the 2010 season (though under the name Lotus Racing at first), before being obliged to change its name to Caterham for the 2012 season after the Chapman family changed sides. The use of the Lotus name also gave rise to litigation - and to Peter Smith J's expression of regret that the parties were not fighting things out on the racetrack but in the courtroom. Unfortunately for Team Lotus/Caterham, on the track they never come within striking distance of their opponents in the court (except when Paul Di Resta is obliged to start from the back of the grid and has to pass what are still often called the "new teams").

In the present case, of course, Caterham were not a party. Nevertheless, they were the indirect beneficiary of the breach of confidence, and therefore an indirect target of the litigation - which perhaps shows how times change in grand prix motor racing: Force India have not been consistently near the front but they have had their moments over the years, while Caterham's best years are, I hope, ahead of them - they are a couple of years behind Force India, which started racing in 2008, although it can trace its history back to the launch of the Jordan team in 1991. Even in 2010 Force India were miles ahead of the new teams. From Force India's point of view, was the backmarker worth (as litigators say) powder and shot?

* I use the expression deliberately, in protest against the appropriation as a trade mark of the title of the applicable set of rules and its use as the name of the series of races.

Damages for unauthorised use of photographs

The Patents County Court nowadays has to have a clear idea about the amount of damages at stake in actions before it, so in Sheldon v Daybrook House Promotions Ltd [2013] EWPCC 26 (8 May 2013) it had to take an initial view about the value of a claim for a photograph of a couple of popular musicians together.  This would determine whether the case should remain on the small claims track or whether it should be allocated to the multi track.  The amount that the Court thought might be at stake would also have a significant bearing on the prospect of settlement.

The Claimant was a professional photographer, and in that capacity he had exclusive access to the tour bus on which the musicians were travelling.  The Defendant ran a nightclub and without permission it used the photograph on printed material, online advertisements and its Facebook page.  It said it would have expected to pay no more than a few hundred pounds for that but the Judge was unimpressed.  He took the view that it was irrelevant what the claimant would have paid, and what mattered was the Claimant’s evidence about the rates that he would normally charge for such a photograph.  On that basis he decided that if the Claimant succeeded the damages that would be awarded would amount to £5,682 – plus VAT, of course.

Damages for innocent infringement of designs? No, but how about an account of profits?

Remedies in cases of innocent infringement of UK registered designs are the subject of proposals from the Intellectual Property Office in a  consultation response published recently. The law will also be changed to stop registered or unregistered Community design rights holders getting damages for innocent infringements. The response to the consultation on the topic had been nearly unanimous that there should not be different remedies available to rights holders for innocent infringements of registered UK or Community design rights.

The consultation response says:

Based on the responses received, we therefore propose to introduce provisions which will make it possible for the owner of a UK registered design to seek a financial remedy from an unintentional infringer of the registered design. However, the remedy available will only be for an account of profits, and not damages. In order to equalise the provisions, the existing provisions for financial remedies for the unintentional infringement of Community designs will be amended to mirror this approach.

This is a balanced approach. It is right that the infringer, even if innocent, should not get away with the profits he has made from using someone else's rights: those profits rightly belong to the owner of the infringed rights. On the other hand, innocent infringers should not be liable for damages. Enabling the court to order an account of profits is a sensible way to deal with the matter.

Evidence in claims for breach of competition rules

It's long been open to anyone damaged by someone's breach of competition rules to claim damages, but there have been few cases of it happening. You'd think that if the competition authorities had found there was an illegal cartel, and had fined participants, it would be dead easy to get damages, but National Grid are currently demonstrating just how tricky it can be to adduce the necessary evidence. It's applied to the High Court to be given access to documents used in support of leniency applications. And the leniency deal (without which the authorities would have no chance of finding out about the existence of cartels) is a first past the post one: in contract terms, the second whistleblower is unable to give valuable consideration in return for immunity - the authorities already have the information. The result could be an unseemly rush to the Office of Fair Trading as soon as the cartel meeting is over ...

So, although it's not an IP case, this one will be worth watching. This report in The Guardian also makes the important point that prospective claimants are also likely to be concerned about the damage that pursuing a claim would do to commercial relationships. How much simpler life was when if someone ripped you off you didn't still need to be nice to them in future.

Postscript: Pfleiderer AG v Bundeskartellamt (Case C-360/09); [2011] WLR (D) 196 - ICLR summary says “A person adversely affected by an infringement of European Union competition law was not precluded by the provisions of that law from being granted access to documents relating to the leniency procedure for the purposes of bringing a civil action for damages.”

Pursuing downloaders: sharing the proceeds

It's now several  months old but this piece from The Guardian reveals that ACS:Law took 40 per cent of the money received from recipients of threatening letters relating to downloads of music. For the adult movies it also handles claims for, the lawyers would retain even more. Interesting to know these figures.