England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURTOF JUSTICE
CHANCERY DIVISION
PATENTS COURT
On appeal from Order of Arnold J.
HC12A02048, HC12C02909

		Royal Courts of Justice Strand, London, WC2A 2LL
		12/12/2013

LORD JUSTICE PATTEN :
 


1. This is an application by HTC Corporation ("HTC") for permission to appeal against the refusal by Arnold J of a general stay of the permanent injunction, which he made at the conclusion of the trial, in which he found that Nokia's European Patent (UK) No. 0 998 024 ("the Patent") was valid and infringed by components in some of HTC's products. The claims in the patent relate to chips for mobile phones. The judge gave permission to appeal against the injunction and the associated order for delivery up of infringing material, but stayed the injunction pending the appeal in respect of the HTC One phone, which he said, on the appellant's evidence, was its flagship model. The judge, however, refused any wider stay, rejecting HTC's claim that it should also be allowed to continue to sell the HTC One Mini and other products which utilise the infringing chips. As to that, the judge accepted that it would be difficult to quantify the damage which HTC will suffer if prevented from selling the HTC One Mini and other phones between now and the appeal, which is likely to be heard in either July or October next year. However, he ruled that HTC had been on notice of the infringement allegations from the date in May 2012 when some German infringement proceedings were commenced, in which time it could have made contingency plans including requesting its chip suppliers, Broadcom and Qualcomm, to design a chip for its phones which did not have the features of claim 1 of the Patent. The judge said that it was not until March 2013 that Qualcomm was asked to produce a workaround (which it refused to do) and not until 26th November 2013 that Qualcomm was persuaded to change its mind. The judge's conclusion, expressed in paragraph 85 of his judgment, was that:

"In my judgment, in the case of the One, the balance comes down in favour of granting a stay. The potential harm to HTC outweighs that to Nokia, the One has been on the market for some time and the impact of HTC's apparent lack of contingency planning is less significant. In the case of the One Mini, the balance comes down in favour of refusing a stay. In this case the potential harm is more evenly weighted, but importantly the phone was launched much more recently and HTC designed and launched it at a time when HTC knew it was facing a claim for infringement of the Patent and apparently without making any contingency plans."

2. HTC now seek permission to appeal against the refusal of a more extensive stay which would enable the One Mini and the other infringing phones to continue to be sold pending the hearing of the full appeal against the judge's order. Kitchin J adjourned the application to the full court with directions that the appeal should follow, if permission is granted, for the obvious reasons that the issue must be decided as a matter of expedition if the appeal is to be of any value to the appellant. I should emphasise that we are not today concerned with any issues of validity or infringement or with whether the judge was right to grant a permanent injunction, as opposed to some more limited form of relief for the infringements which he found proved. These are matters for the full appeal next year. We are only concerned with the much more limited question of whether Arnold J should have granted a general stay of the injunction pending the full appeal.
3. This is important because HTC's challenge to the judge's order relates both to the issue of validity and infringement and also to whether Nokia should have been refused a permanent injunction and been limited to its remedy in damages. HTC has permission to argue that even if the judge was right on the issues of validity and infringement, the grant of an injunction was disproportionate. On this latter point, the judge was taken to the familiar authorities such as Jaggard v Sawyer [1995] 1 WLR 269 on the circumstances in which the court may properly refuse a permanent injunction so as to prevent future breaches of the claimant's legal rights and instead award damages in lieu under what is now section 50 of the Senior Courts Act 1981. As a general rule, injunctive relief should be refused if the injury complained of is small, it can be estimated and adequately compensated for in money terms, and the grant of an injunction would, in the circumstances, be oppressive in the sense of disproportionate to the right sought to be protected. One advantage of an award of damages under section 50 is that it can be calculated on a basis which compensates the successful claimant for the profit which the defendant is likely to gain from being able to operate in breach of its legal rights. This is frequently based on what the court assesses would have been a reasonable fee for the parties to have negotiated for the grant of the necessary licence.
4. The judge also considered in his judgment the effect on this jurisprudence of Articles 3 and 12 of the Enforcement Directive (European Parliament and Council Directive 2004/48/EC of 29^th April 2004) with their own criteria of proportionality.
5. Mr. Burkill QC for HTC submits that judge's limited stay was contrary to established principles governing the stay of injunctive relief pending appeal, and that he failed to make an order which would enable the court to do justice between the parties, whatever the outcome of the main appeal may be. Moreover, since the judge accepted that the most serious and therefore potentially harmful source of competition to Nokia appears to be the HTC One phone but that this was still insufficient to justify the refusal of a stay in respect of that product, there can be no basis on which the judge could properly have refused a stay in respect of the other HTC phones which did not pose the same level of risk. In any event, the judge failed, in the relevant paragraphs of his judgment, to identify what facts he relied on in order to reach that conclusion. The proper course therefore for the judge was to preserve the status quo by granting a general stay pending the main appeal.
6. Both sides, I think, accept that the grant of a stay pending an appeal is an exercise of discretion by the court which is intended (as far as possible) to minimise the loss and inconvenience to the ultimately successful party. As the premise on which the court operates is that the eventual outcome remains uncertain until judgment on the appeal, the strength of the rival contentions on the merits is unlikely to be persuasive in deciding whether or not to grant the stay. The winning party at trial is entitled to rely on the fact that the judge has affirmed its position in the proceedings but the unsuccessful party can say that it has obtained permission to appeal (in this case from the judge himself) which, to use the language of CPR Part 52.7, indicates that the appeal must at least have a real prospect of success. There may be cases in which the court, whilst granting permission to appeal, recognises that the so far unsuccessful party will have an uphill struggle. But in most cases it will not be possible to predict the likely outcome with any certainty nor, in my view, appropriate to do so.
7. The effect of a stay is therefore to impose upon the successful party a temporary postponement of the relief he obtains from the trial judge until the correctness of the order is confirmed by the Court of Appeal. Consistently with the court's disinclination to debate the merits, the grant or not of the stay has to take into account the effect on the respective parties of such a postponement, weighed against the possibility that either may eventually turn out to be the winning party. Perfect justice is rarely obtainable and the uncertainty of the eventual outcome inevitably dictates that court may be able to do no more than to opt for the lesser of two evils. It is essentially about minimising risk. Where the potentially adverse consequences are relatively evenly balanced, the court can probably do no better than to maintain the status quo pending the outcome of the appeal.
8. The operation of these principles were discussed by Buckley LJ in Minnesota Mining & Manufacturing Co. v Johnson & Johnson (No.3) [1976] RPC 671, at page 676:

"It is not in dispute that where a plaintiff has at first instance established a right to a perpetual injunction, the court has a discretion to stay the operation of the injunction pending an appeal by the defendant against the judgment. On what principles ought such a discretion to be exercised. The object, where it can be fairly achieved, must surely be so to arrange matters that, when the appeal comes to be heard, the appellate court may be able to do justice between the parties, whatever the outcome of the appeal may be. Where an injunction is an appropriate form of remedy for a successful plaintiff, the plaintiff, if he succeeds at first instance in establishing his right to relief, is entitled to that remedy upon the basis of the trial judge's findings of fact and his application of the law. This is, however, subject to the defendant's right of appeal. If the defendant in good faith proposes to appeal, challenging either the trial judge's findings or his law, and has a genuine chance of success on his appeal, the plaintiff's entitlement to his remedy cannot be regarded as certain until the appeal has been disposed of. In some cases the putting of an injunction into effect pending appeal may very severely damage the defendant in such a way that he will have no remedy against the plaintiff if he, the defendant, succeeds on his appeal. On the other hand, the postponement of putting an injunction into effect pending appeal may severely damage the plaintiff. In such a case a plaintiff may be able to recover some remedy against the defendant in the appellate court in respect of his damage in the event of the appeal failing, but the amount of this damage may be difficult to assess and the remedy available in the appellate court may not amount to a complete indemnity. It may be possible to do justice by staying the injunction pending the appeal, the plaintiff's position being suitably safeguarded. On the other hand it may, in some circumstances, be fair to allow the injunction to operate on condition that the plaintiff gives an undertaking in damages or otherwise protects the defendant's rights, should he succeed on his appeal. In some cases it may be impossible to devise any method of ensuring perfect justice in any event, but the court may nevertheless be able to devise an interlocutory remedy pending the decision of the appeal which will achieve the highest available measure of fairness. The appropriate course must depend upon the particular facts of each case."

9. In Novartis AG v Hospira UK Limited [2013] EWCA Civ 583, Floyd J, at paragraph 41, summarised the principles to be applied as follows:

"i) The court must be satisfied that the appeal has a real prospect of success.

ii) If the court is satisfied that there is a real prospect of success on appeal, it will not usually be useful to attempt to form a view as to how much stronger the prospects of appeal are, or to attempt to give weight to that view in assessing the balance of convenience.

iii) It does not follow automatically from the fact that an interim injunction has or would have been granted pre-trial that an injunction pending appeal should be granted. The court must assess all the relevant circumstances following judgment, including the period of time before any appeal is likely to be heard and the balance of hardship to each party if an injunction is refused or granted.

iv) The grant of an injunction is not limited to the case where its refusal would render an appeal nugatory. Such a case merely represents the extreme end of a spectrum of possible factual situations in which the injustice to one side is balanced against the injustice to the other.

v) As in the case of the stay of a permanent injunction which would otherwise be granted to a successful claimant, the court should endeavour to arrange matters so that the Court of Appeal is best able to do justice between the parties once the appeal has been heard."

10. In this case the practical and economic effect of the injunction will be to control future market share between rival manufacturers of smartphones. The evidence before the judge can be summarised as follows:

(i) the judge found that the Patent was infringed by the circuitry in the Broadcom BCM4329 and BCM4334 chips and the Qualcomm WTR1605(L) chip. There is also probably no material difference, according to the judge, between the Broadcom BCM4329 and BCM4330 chips. The HTC One phone uses the WTR1605(L) and the BCM4335 chips. The One Mini phone, which was launched in August 2013, contains the WTR1605(L) and the BCM4334 chips. HTC also launched the One Max phone in October this year, which uses the WTR1605(L) chip;

(ii) on 2nd May 2012 Nokia sued HTC in Germany for infringement of the Patent based on its use of the BCM4329 and BCM4330 chips. The claim was supported by a circuit diagrams showing the features of the claims. HTC then commenced these English proceedings seeking revocation of the Patent on 17th May 2012 and Nokia counterclaimed for infringement. The One phone was launched against the background of the proceedings in March 2013;

(iii) by the time of the trial in October 2013 HTC had therefore known of the allegations of infringement in respect of the BCM4329 and BCM4330 chips for almost 18 months and of the claims in respect of WRT1605(L) and BCM4334 chips for six months;

(iv) the relevant market is the UK smartphone market which is valuable and has grown rapidly. The HTC One family of phones is HTC's flagship range on which its principal advertising is focussed and which is promoted as its leading brand image. It accounts for a large part of its UK sales and, within that range, the One phone significantly out-sells the One Mini. It also has proposals for the launch of phones referred to as the Desire 300 and Desire 601, one of which at least appears to be likely to use one of the infringing products. We were also told by Mr. Tappin QC for Nokia this morning that a new range of phones, one or some of which may also employ the infringing chips is imminent;

(v) most of the sales of HTC smartphones are to network operators such as Vodaphone and Orange or to specialist phone shops, such as the Carphone Warehouse. There appear to be only limited direct sales;

(vi) the permanent injunction over all models using one of the infringing chips will inevitably terminate HTC's participation in the smartphone market and cause other problems in relation to its UK operation. It will also, or is likely also, to have long-term economic effects in that, in a highly competitive market, its market position and share will be taken up by its competitors, including Nokia, and it will be difficult, if not impossible, it says, for it to re-enter the market.

(vii) The injunction may also lead to a significant collapse or reduction in public interest and confidence in its product and in the brand name. It will not, it says, be possible to calculate the value of its lost business;

(viii) HTC is able to keep records of the number and type of phones with infringing chips which are sold so as to be able to account to Nokia for its profits or the loss of licence fees;

(ix) HTC will need between four and 12 months in which to develop a useable chip which will not infringe the Patent;

(x) Nokia's flagship range of smartphones is the Lumia range which competes with the HTC One family of phones. Sales have been lost but not, as the judge found, on a one-to-one basis. The HTC One phone is the main competitor in the One range that is identified in Nokia's evidence;

(xi) Nokia has entered into an agreement to sell its mobile phone handset business to Microsoft, which, subject to regulatory approval, should be completed in the first quarter of next year. Until then, however, it will continue to be in direct competition with HTC. And after that it will continue as the patentee and licensor of the Patent.

11. The judge also heard evidence as to Nokia's motivation in seeking an injunction against HTC in relation to the use of the infringing chips. Although relevant to the issue of whether a permanent injunction should be granted, it seems to me largely irrelevant to what we have to decide. The focus of our inquiry, or more particularly of the judge when asked to grant the stay, has to be on the effects on the parties of either refusing or granting that form of relief. Arnold J, as I said, accepted that an immediate unqualified injunction would have a disastrous and potentially terminal effect upon HTC's UK business. It seems to me that he was obviously entitled to reach this conclusion. It would take off the market HTC's flagship range of phones, upon which its commercial reputation and market share appears to be largely based and, after a gap of at least six months, its ability effectively to re-enter the market and to re-establish an equivalent economic position must be at least questionable. It would therefore suffer significant loss and damage if it turned out that the injunction should never have been granted and damages would not, in my view, be an adequate remedy. Although it might be possible to calculate lost sales based on past sales, no accurate estimate could be made of any increase in future sales or market share. More particularly, it would be impossible to calculate how quickly (if at all) HTC could get back into the market or what they will have lost in terms of market share by not remaining in the market up to the date of the appeal.
12. By the same token, Nokia can also claim with some justification that HTC's offer to keep an account of sales is unlikely to provide a complete indemnity against its prospective losses should it turn out that the injunction was rightly granted. It will not be possible to determine the extent to which the removal of HTC's infringing phones from the market would have increased sales of rival Nokia products or otherwise affected its market share. There are, therefore, imponderables on both sides.
13. The judge, however, concluded that the HTC is likely to suffer a much greater loss from the refusal of the stay than Nokia will do from its grant at least in respect of sales of the One phone and that it will obviously suffer loss from continued competition with the One range of phones. Nokia remains at the moment, as I have said, a company trading in smartphones. But that will not be the position for very much longer. In all probability, although it will continue thereafter as the patentee, there is, however, no suggestion in the evidence that the sale of its business to Microsoft will be adversely affected in terms of price by HTC being allowed to remain in the market until next summer. By contrast, HTC says that it risks the entire and perhaps irreparable loss of its UK business which, as it stands, is largely founded on the One range.
14. The judge's decision to distinguish between the One and the One Mini in his judgment seems to have originated in exchanges which he initiated with counsel during HTC's application for a general stay of the injunction. The judge suggested granting a stay in respect of the WTR1605(L) chip, but not in respect of the infringing Broadcom chips. This, I think, would have meant that sales of the HTC One would continue to be permitted but not sales of the One Mini. The following day there was a further hearing before the judge at which HTC sought an extension of the stay so that is also covered the One Mini phone. Mr. Burkill says that he did not re-argue the case for a general stay because the judge had already rejected that and so the renewed hearing was essentially an exercise in damage limitation designed to allow sales of the two most popular phones to continue.
15. Mr. Tappin, however, accepts, that nothing that occurred as part of that hearing prevents HTC from arguing before us that the right order should be that of a general stay.
16. The judge's stated reasons for not granting such a stay of the injunction were based on the much narrower issue of whether HTC should in effect be penalised because it failed to use the time available since the claims of infringement were first made to provide a workaround in respect of the chips. The timescales are such that it is likely that a non-infringing chip could have been designed and produced in the time available and it was said, and accepted by the judge, that this disentitles HTC to the benefit of a stay for anything but the One phone itself.
17. Mr. Burkill submits that the judge's reasons for refusing a stay in respect of anything but the One phone are wrong in a number of respects:

(1) as already mentioned, the judge accepted that although the One phone was the most serious competitor to the smart phone sold by Nokia, the potential damage to HTC from being injuncted from continuing to sell it outweighed any foreseeable loss to Nokia from sales continuing until after the appeal. Consistently with this, the judge was wrong, he says, to refuse to allow HTC to sell its other infringing phones such as the One Mini which, on the judge's own findings, did not pose the same level of risk of damage to Nokia but were nonetheless part of HTC's core business;

(2) the judge is said to have ignored or given insufficient weight to the fact that the One Mini is an important part of the One flagship range of phones sold by HTC and that its ability to sell only one of the phones in the range would have a serious effect on its business as a whole; and

(3) he submits that the judge's order, by restricting HTC's product range up to the appeal, will create practical problems in terms of eventual outcome because on any assessment of damages (whether on Nokia's cross-undertaking or in relation to Nokia's claim for infringement) it will be necessary for the court to conduct separate inquiries for the period from trial to appeal based on HTC having been allowed to sell only part of its product range.

18. With respect to the judge, I consider that his approach to the grant of the stay in this case was wrong in principle. I consider that he lost sight of the basis upon which a temporary stay of this kind is conventionally granted. So far as HTC is concerned, there was no clear distinction in the evidence between the effect of the injunction on the One phone as opposed to the entire One range and, although stating that the two were not the same in his judgment, the judge gives no indication in that part of the judgment as to the facts or other matters which he relied upon in order to reach that conclusion. The evidence was that HTC's advertising campaign has been built around the whole One range and an injunction which enables it to continue to sell one of the products but not the others is still likely, in my view, to create significant disruption with its customers and with its commercial reputation. The judge himself recognised that an injunction in relation to the One Mini would also have some serious consequences for HTC (although not as serious as in the case of an injunction against all the One range infringing phones). But what appears to have tilted the balance in Nokia's favour was the fact that the One Mini had been launched more recently.
19. The difference in timing is said to be between March and August 2013, although HTC say that the One Mini was designed in January 2013 to use the BCM4334 chip. But if the decisive factor should be the amount of time available to HTC to make contingency plans for an alternative chip by reference to a start date beginning with the commencement of the German infringement proceedings then that would seem to apply as much, if not more, to the One phone which was the earlier product. None of this is really explained in the judgment. The judge's acceptance that HTC's business would be severely damaged by the injunction also applies as much to the later additions to the One range as it does to the One phone itself. I accept Mr Burkill's submission that there is an inconsistency between the judge's apparent acceptance that the One phone was the single biggest competitor to Nokia and the refusal of a stay in respect of the apparently less competitive products. The judge's deciding factor -- the argument that HTC should have erred on the side of caution by seeking to employ an alternative chip -- has to take into account the possibility that the judge's findings on validity and infringement may be overturned on appeal which is the very premise upon which a stay is granted. Consistently with this, it would, I think, be wrong to deny HTC a general stay of the injunction (as the judge has done in this case) principally, if not solely, on the basis that the appellant should have assumed that it was likely to be the loser at the trial. It is clear from the passages quoted earlier that the focus of the court's inquiry is on the economic consequences to each party of the grant or refusal of the stay. Issues of contingency planning will not, in most cases, be relevant. They may be relevant to the question of how one should assess the balance of convenience in relation to the grant of an interim injunction before the trial. But by the time of the trial there will either be such an injunction in place or one will have been refused or not applied for. The status quo in these circumstances speaks for itself.
20. We were referred to the decisions at first instance and also on appeal in SmithKline Beecham plc v. Apotex Europe. The first of those two decisions, that of Jacob J, is reported at [2002] EWHC 2556; the decision of the Court of Appeal is reported at [2003] EWCA Civ 137. But in those cases, the issue was rather different from the issue which the judge referred to in terms of contingency planning here. There, the issue was whether a defendant who had entered an established market with a potentially infringing product could rely on alleged uncertainties about the acts of infringement which were the result of it not having taken the opportunity to clear away the patent in advance in revocation proceedings. Revocation proceedings were commenced in this case; and the judge did not suggest, as part of his reasoning, that they should have been commenced at some point earlier in time. Moreover, even if the judge was entitled to conclude that the position of the parties in relation to the One Mini was more evenly balanced, he should, in my view, have maintained the status quo by granting a general stay. Nokia had neither sought nor obtained an interim injunction before trial so as to prevent the acts of infringement complained of, and it was too late for the judge, in my view, to rely on HTC's failure or delay in seeking a workaround as a reason for refusing a general stay. He was wrong, in my view, to refuse to replicate the pretrial state of affairs pending the outcome of the appeal.
21. Mr. Tappin, as an alternative, has suggested that we should limit the stay to existing models so as to injunct any new models which may infringe. But in my view, the rotation and introduction of new models has been going on throughout the period up to trial, and I can see no reason to stop it pending the appeal. The remedy for Nokia is to apply for the expedition of the appeal.
22. For these reasons, I would, therefore, grant permission to appeal, allow the appeal, and order a general stay of the injunction pending judgment in the main appeal or further order.
23. LORD JUSTICE TOMLINSON: I agree.
24. LORD JUSTICE FLOYD: I also agree. I would add only that the course taken by the judge appears to me to have lost sight of the importance of arranging matters so as to make the doing of justice by the Court of Appeal after judgment on the appeal easier. The partial stay seems to me to have the potential to complicate the subsequent sorting out, whether by way of the inquiry as to damages or by way of an inquiry on the cross-undertaking, of the consequences of judgment on the appeal. But for the reasons given by my Lord, I would agree with the order he proposes.
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