England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
PATENTS COURT
MR JUSTICE BIRSS
[2013] EWHC 3768 (Pat)

		Royal Courts of Justice Strand, London, WC2A 2LL
		21st November 2014

Lord Justice Floyd:

1. The parties have not been able to agree the terms of a final order, and have both made written submissions on the issues in dispute. BT has requested an oral hearing. Having considered that request we conclude that an oral hearing is not necessary as we can decide the points in issue on the basis of the written submissions of the parties, which are very clear. This is the judgment of the court on the outstanding issues. In what follows references to paragraphs of the draft orders are to the marked-up versions at tab 3 of the bundle lodged by Bird & Bird entitled "Submissions on Final Order".

The draft order on the790 patent

2. The draft order in relation to BT's appeal on the 790 patent is agreed save for two matters. First, there is an issue in paragraph 4 as to BT's time for payment of the agreed sum on account of costs. We consider that BT will have had adequate time to pay if the order specifies a period of 14 days from the date of the order. Second, BT asks for permission to appeal to the Supreme Court. We refuse permission.

Injunction in respect of the 495 patent: stay and cross-undertaking

3. BT seeks a stay of the injunction on the 495 patent (until 8 December 2014) to enable it to make alterations to its systems to render them non-infringing – see 11C of the draft order on 495. It also seeks liberty to apply to extend the stay. ASSIA is prepared to agree a stay in return for the payment of a weekly payment of damages in lieu of the injunction to which it would otherwise be entitled, and seeks restrictions on the liberty to apply – see paragraphs 11A and 11B of the draft order.
4. Birss J was prepared to stay the injunction on 790, simultaneously permitting BT to amend its counterclaim to seek a declaration of non-infringement in respect of a modified version. There was also a pending appeal for which he had given permission. The position on 495 is different. We do not give permission to appeal (see below) and there is no request for a stay pending the outcome of any application for permission to appeal to the Supreme Court. In these circumstances an injunction would normally be granted. However, we are narrowly persuaded that it would be right to stay the injunction on terms. ASSIA has made it clear that it is primarily interested in a financial remedy, as its business lies in licensing its inventions. That does not mean that it is not entitled to seek an injunction when BT has never sought a licence: otherwise it would never be able to bring a prospective licensee to the table. But it does mean that it will suffer no lasting harm if, for a short period, BT is granted a stay in order to cease use of the invention. On the other hand, given BT's large market share, the public would suffer if an injunction were granted disrupting or reducing the quality of the BT service.
5. As to the terms of the stay, ASSIA ask that we impose a condition that BT pays £250,000 to ASSIA for each week of the stay. It calculates that sum on the basis of 10% of their estimate of BT's revenue of £2.5 million per week from their NGA products. BT says that it is too early to form any view of the proper level of assessment of damages, and points out that ASSIA does not indicate what level of royalties is paid by ASSIA's other licensees. BT does not suggest any calculation of its own, or indicate what levels of royalty are appropriate in relation to this business area.
6. In Virgin Atlantic v Premium Aircraft [2009] EWCA Civ 1513 a similar complaint was made as to the amount of a suggested payment. Jacob LJ, with whom Patten and Kitchin LJJ agreed, said this at [34]:

"The £10,000 per seat sum is indeed substantial. It will amount to £4 million. There may well be some force in saying it is too high judging by the Air New Zealand rate as a comparison, but this is no place to make any evaluation of that. Mr Meade submitted that the patent was fundamental. He may be right. On the other hand Air New Zealand's main interest may have been the flipover bed which is supposed to be particularly comfortable. I am not impressed by Miss Pickard's "more than the profit" point. Contour negotiated the contract with Delta knowing the risk if it priced that too low and without regard to Virgin Atlantic's intellectual property rights. That explains but does not justify the position it finds itself in. Besides if the sum is too much compared with the sum ultimately held appropriate, on the inquiry to damages not only would Virgin Atlantic be able to repay but more significantly that inquiry would also cover the 2,800 seats already supplied. Any overpayment on the 400 will most likely not amount to an overpayment altogether, so in a way the overpayment, if such it proved to be, would be in the nature of interim damages."

7. We think that similar considerations apply here. 10% is indeed a very substantial royalty rate. However, the amount payable is on account of damages, and ASSIA will be liable to repay it if it proves too much. As in Virgin, the enquiry as to damages will cover the entire period of BT's infringement, so an over-payment overall is unlikely. We therefore think the terms suggested by ASSIA in its paragraph 11A are appropriate and we will make an order in those terms, subject to it being made clear that the payments are an interim payment on account of damages, to be repaid to the extent that the amount paid pursuant to the order exceeds the amount awarded overall on the enquiry. There will be liberty to apply in the Patents Court in the terms specified in ASSIA's paragraph 11B.
8. We also consider it appropriate, both generally and as a condition of the stay, that BT should confirm the steps it has taken to render their products and systems non-infringing. The court would normally order delivery up of infringing articles as an adjunct to the injunction, but we are prepared to grant the less extreme remedy of an order to render the products and systems non-infringing. In order to make this order effective BT must explain the steps it has taken. We therefore grant an order in the terms of paragraph 12 of ASSIA's draft.
9. BT seeks a cross-undertaking in damages in relation to the final injunction to cater for the possibility that the European Patent Office might subsequently decide to revoke or materially amend the patent. We would reject this. A cross-undertaking is appropriate to take account of the possibility that an earlier judgment is wrong (e.g. an interim injunction or an injunction pending appeal). In the present case, revocation by the EPO would not show our judgment to be wrong, or the injunction to have been wrongly granted. A subsequent EPO revocation or amendment would mean that the injunction would become ineffective or have to be discharged from the date of revocation/amendment, but not ab initio. There is no reason for ASSIA to pay for the harm during the period when the injunction was rightly granted. It follows that the appellant's undertaking numbered (ii) on page 2 of the order should be deleted.

Section 63(2)

10. We do not think that section 63(2) has any bearing on the issues of costs. Even if one assumes in BT's favour that the specification was framed with a lack of good faith or reasonable skill, we cannot see any reason for depriving ASSIA of its costs of its successful appeal, which was solely concerned with claim 6. As to costs below, we propose to make appropriate deductions for the fact that BT won on the validity of claim 1. We cannot see that the allegation of lack of good faith, if proved, would drive us to go further.
11. It is slightly less clear whether section 63(2) in its amended form could have any impact on damages. But as ASSIA suggests in paragraph 49(c) of its skeleton, BT can raise that issue in the enquiry as to damages if we so direct.
12. We therefore decline to direct the specific section 63(2) enquiry which BT seeks, but would allow BT to raise the issue in the enquiry as to damages if it is so advised. Paragraphs 22 and 23 of the draft should be deleted. It also follows, we think, that the appellant's undertaking numbered (i) on page 2 of the order should be deleted.

Stay of enquiry as to damages/undertaking to repay pending EPO

13. It is true that BT has never applied for a stay, and has pursued its defence and attack on validity to trial here while the EPO proceedings were current. But, if BT had applied for a stay, it is now more or less inevitable that ASSIA would have had to undertake, as a price of resisting such a stay, to repay (in the event of revocation or amendment) any financial relief subsequently obtained: see IPCom v Nokia [2014] RPC 12 at [68] point 7. In those circumstances it seems to us that fairness requires such an undertaking.
14. Consistently with that conclusion, we would refuse a stay (paragraph 24 of the draft order) provided that ASSIA undertakes to repay any sums found due in the event of revocation or amendment of the patent.
15. We will accordingly make orders in the terms of paragraphs 13 to 17 of the draft order.

Costs and interest

16. We think that ASSIA should have its costs of the appeal on 495. We accordingly make an order in terms of paragraph 17 of the draft.
17. As to the costs of the trial, the judge awarded ASSIA 40% of its costs on both patents (after making allowance for the dropped patent 410). ASSIA says this should go up to 73% now that they have won on 495 as well (see the calculation at paragraphs 60-66 of ASSIA's skeleton). BT says that the judge's percentage should be left alone.
18. BT's argument is that validity of claim 1 was a heavier issue than ASSIA's calculation gives credit for. We think there is merit in BT's submission that ASSIA's calculation does not give sufficient credit for the weight of the issue of validity of claim 1, on which they succeeded. However, that does not lead us to the conclusion that the judge's order should remain in place. We consider that a figure of 60% of the costs below seems fair. We will make an order in terms of paragraph 18, with the figure of 60% inserted in sub-paragraphs (a) and (b) for the figure of 73%. There is no independent objection to paragraph 19 (interest), and we make an order in those terms.

Interim payment

19. It is agreed that for the costs of the appeal there should be an interim payment of £200,000 split as to £80,000 on the 495 appeal and £120,000 on the 790 appeal. In paragraph 20 of the draft order on 495, the cross reference should be, we think, to paragraph 17.
20. The judge made an interim award below of £430,000, on the basis of his award of 40% of ASSIA's costs. On the basis that we adjust the costs order below to 60% of ASSIA's costs, we would accordingly order BT to pay a further £215,000 so as to bring the total interim payment up to £645,000. Paragraph 21 of the draft order should reflect this.

Permission to appeal to the Supreme Court

21. We refuse permission to appeal to the Supreme Court.

Amendment

22. We make an order in terms of paragraph 25 of the draft order on the basis that the form of the specification and claims of 495 attached be that attached to ASSIA's junior counsel's email dated 17 November 2014.

CPR 31.22

23. We make an order in terms of paragraph 26 of the draft order.

Perfected minute

24. Counsel are now asked to lodge a perfected minute of the order taking account of the above decisions within 3 days of the handing down of this judgment.