England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
PATENTS COURT
SHORTER TRIAL SCHEME

		Royal Courts of Justice 7 Rolls Building Fetter Lane London, EC4A 1NL
		19th February 2018

Mr Justice Henry Carr:

Section 68 of the Patents Act 1977

1. The claims of infringement of patent and registered design have succeeded. I now have to consider whether the operation of s. 68 of the Patents Act 1977 precludes, at least in part, recovery of costs by the Claimants ("L'Oréal").
2. S. 68 of the Patents Act provides:

"68. Where by virtue of a transaction, instrument or event to which section 33 above applies a person becomes the proprietor or one of the proprietors or an exclusive licence of a patent and the patent is subsequently infringed before the transaction, instrument or event is registered, in proceedings for such an infringement, the court or comptroller shall not award him costs or expenses unless—


(a) the transaction, instrument or event is registered within the period of six months beginning with its date; or


(b) the court or the comptroller is satisfied that it was not practicable to register the transaction, instrument or event before the end of that period and that it was registered as soon as practicable thereafter."

3. An exclusive licence is a transaction to which s.33 applies and therefore is required to be registered.
4. The purpose of s.68 was considered by the Supreme Court in Schütz v Werit [2013] UKSC 16; [2013] RPC 16. At paragraph [85] Lord Neuberger approved the observation of Jacob LJ in LG Electronics v NCR Financial Solutions Group Ltd [2003] FSR 24 that "People need to know who is on the register. This section is aimed at making the people who own the monopolies get on the register". The section is intended to ensure the accuracy and completeness of the register by providing a costs sanction for failure to register within six months, unless the exception in s. 68(b) applies.
5. Paragraphs [97]- [100] of Lord Neuberger's judgment explain how the costs sanction of s.68 is intended to work. In summary:

(i) The conclusion of the Court of Appeal in Schütz that s.68 only disentitles a licensee from recovering costs incurred in connection with an infringement action during a period that the licence is unregistered was rejected inter alia because "it leaves the section with very little bite, as an unregistered licensee could avoid its consequences simply by registering and then starting the proceedings."

(ii) Werit's case, that if a claim for damages or an account by the licensee of a patent relates to an infringing act prior to registration of the licence, then the claimant licensee can recover no costs, was also rejected, as it would produce an arbitrary and penal result: "It is arbitrary because the sanction would be the same whether the licensee was claiming for one week's infringement before registration and five years' after, or for five years' infringement before the registration and for one week's after. In the former case, it would also be penal."

(iii) The correct interpretation is that a licensee cannot recover its costs in so far as they are attributable to the claim for damages or an account in respect of infringements pre-dating the registration of the licence, but it can recover costs attributable to such relief in respect of infringements post-dating the registration. The Supreme Court rejected the view of the Court of Appeal, expressed in argument, that this would be unworkable. Lord Neuberger said that: "Obviously in a case where there was a claim for pre- and post-registration relief, there would have to be an apportionment, and the apportionment would normally involve an element of rough justice. But that is a familiar state of affairs when it comes to costs."

The dispute in this case

6. The first Claimant ("L'Oréal SA") is the proprietor of the patent in suit ("the Patent") and has granted an exclusive licence to the second Claimant ("L'Oréal UK"). In particular, an exclusive licence was entered into on 1 July 2008 between L'Oréal SA L'Oréal UK. By an addendum dated 1 August 2012 the parties agreed to include the Clarisonic product the subject of this Claim as a Licensed Product. The exclusive licence was not registered until 9^th December 2016. In those circumstances it is common ground that s.68 prevents recovery of the costs of the patent infringement claim by L'Oréal UK, as proprietor of the exclusive license.
7. The section provides that "the court or comptroller shall not award him costs or expenses" (emphasis added). It was common ground that, as a result of this wording, the section does not apply to L'Oréal SA as patentee. The dispute concerns the practical effect on costs of the section, where both patentee and exclusive licensee are claimants.
8. L'Oréal contend that the s.68 issue is, in the circumstances of this case, a moot point. The Claimants are jointly and severally liable for the costs of the action. Under the terms of L'Oréal's engagement with Baker & McKenzie, L'Oréal SA is liable for all of the costs of the infringement claim and has, in fact, been paying them. Mr Moody-Stuart submitted that although L'Oréal UK cannot recover its costs, L'Oréal SA is entitled to all of the costs of the action any event. Therefore, he argued that a deduction of a proportion of costs from L'Oréal UK, although required by section 68, will make no practical difference.
9. In answer to that submission, Mr Davis made two points. First, he said that L'Oréal SA, as patentee, has given away all of its rights to sue for infringement to L'Oréal UK, as exclusive licensee. Therefore, the patentee had no cause of action and was only included in the proceedings because it had to be joined, as claimant or defendant, pursuant to s.67(3) of the Patents Act 1977. Therefore, he argued that irrespective of the arrangements as to payment of costs between the parent and subsidiary, given that the cause of action vested in the exclusive licensee, it is the only party entitled to claim costs.
10. Reliance was placed by RN Ventures on Clauses 2.1 and 2.2 of a Confirmatory Patent and Design Licence entered into in 2016 between L'Oréal SA and L'Oréal UK:

"2.1 The Licensor hereby confirms, and to the extent necessary grants, to the Licensee from the effective date, an exclusive licence of the patent and the designs under the terms of the Licence Agreement.

2.2 The Licensee shall have the right, as exclusive licensee of the Patent and Designs, to bring proceedings for infringement of the Patent and/or Designs and to claim damages or other relief in respect of the infringement of the Patent and/or Designs in respect of any act occurring after the Effective Date. "

It was argued that these clauses operated as a grant of the right to bring proceedings for infringement of patent to L'Oréal UK, to the exclusion of L'Oréal SA.

11. I do not accept this. The scope of the exclusive licence is set out in clause 2 of the 2008 Licence Agreement. The Licensor granted an exclusive right to the Licensee to exploit the Licensed Patents in the Territory, and the Licence was limited to the exclusive right to manufacture and have manufactured the Licenced Products, and to import, to distribute and sell the Licensed Products in the Territory. It did not confer upon the Licensee the right to sue for infringement, to the exclusion of the Licensor. The 2016 Licence confirms that the Licensee has the right to sue as exclusive licensee. This confirmatory licence, in relation to the Patent, gives effect to s.67 of the Patent Act, which provides that:

"… the holder of an exclusive licence under a patent shall have the same right as the proprietor of the patent to bring proceedings in respect of any infringement of the patent committed after the date of the licence; and references to the proprietor of the patent in the provisions of this act relating to infringement shall be construed accordingly."

12. I do not interpret clauses 2.1 - 2.2 of the 2016 Licence as excluding the patentee from bringing proceedings but merely as confirming that the licensee may also bring proceedings as exclusive licensee. Therefore, I do not accept RN Ventures' argument.
13. Secondly, Mr Davis relied upon a point which I raised during the course of Mr Moody-Stuart's submissions. The Claimants are parent and subsidiary companies in the L'Oréal group. If the patentee can recover all of the costs of the infringement action in circumstances where s.68 requires the exclusive licensee to be deprived of certain costs, then the section will have no bite. Because of the particular arrangements they have made in respect of costs, L'Oréal will have managed to avoid the consequences of failing to register the exclusive licence, as all of those costs will be recovered by the patentee in any event.
14. This would defeat the purpose of s.68 which is to enable the register to be complete so that the public can rely on it. It is common for patentees to grant exclusive licences to companies in the same group, and for both to bring claims for infringement as claimants. In all such cases, on L'Oréal's argument, it would be possible to deprive s.68 of any bite. Therefore, Mr Davis submitted that as a matter of discretion, I should not allow L'Oréal SA to recover costs that L'Oréal UK are not entitled to recover pursuant to s.68.
15. In answer, Mr Moody-Stuart said that I should consider whether there has been prejudice to RN Ventures in this case. If there has not been prejudice, then I should make no deduction. Since the patentee is part of the same group as the exclusive licensee, and there was no possibility of a change in conduct by the defendant, I should make no deduction from the costs of L'Oréal SA. The position might be different if there was evidence that the parties had entered into a costs agreement with their solicitors deliberately to avoid the effect of s.68, but there was no such evidence in the present case.
16. I do not accept this submission. The policy underlying s.68 is not concerned with prejudice to defendants against whom proceedings for infringement have been brought. It is concerned with the consequences to the public of a failure to register and provides an incentive to ensure that registration is performed by an appropriate date. When the section applies, it may always be characterised as a windfall in favour of the defendants, but that is because it is directed to the public interest, rather than the private interests of the parties to the litigation. It should not require an enquiry into the subjective intentions of the claimants, which would be very difficult to ascertain.
17. In Schütz, the Supreme Court rejected an interpretation of s.68 which would "leave the section with very little bite, as an unregistered licensee could avoid its consequences simply by registering and then starting the proceedings." In my judgment, the same consequence would follow if I allowed the parent to recover costs which could not be recovered by the subsidiary as a result of failure to register the licence. I consider that the exercise of a discretionary power to award costs should be informed by, and should reflect, the statutory policy. In the present case, I consider that as a matter of discretion, I should deprive both Claimants of a proportion of their costs; the question is what proportion.

Calculation of the percentage deduction

18. RN Ventures contended that the best way to perform an apportionment is to look at the proportions of the infringements that took place before and after registration. The figures worked out at approximately 70% pre-registration and 30% post-registration. There was also a successful registered design claim, which (as the parties agreed) accounted for 20% of the costs. RN Ventures submitted that the overall effect of s.68 was that a deduction of 56% of the costs should be made (i.e. 70% of 80% of the costs attributable to the patent infringement claim.
19. Mr Moody-Stuart pointed out that within the 80% of costs attributable to the patent claim, RN Ventures claimed that the Patent was invalid and sought to revoke it. Mr Davis suggested that the counterclaim for revocation was only included as a formality, and invalidity was relied on only as a Gillette defence. I do not accept Mr Davis' submission. By a letter marked "without prejudice save as to costs" which I have been shown, RN Ventures offered to settle the case on the basis that L'Oréal purchase the entire share capital of RN Ventures for £15 million. When inviting that offer to be carefully considered, the first point that was put forward by RN Ventures' solicitors was that: "Your client's patent would remain in force. Put simply, if the matter settles the validity of your client's patent would not be vulnerable to revocation at trial." I consider that the claim for revocation was perceived to have a very significant potential value to RN Ventures, and it did not succeed.
20. Mr Moody Stuart suggested, on the basis of a rough and ready calculation, that I should attribute 30% of the costs of the patent claim to validity. I agree. That means that 50% of the costs of the proceedings are attributable to patent infringement costs.
21. There were two claimants. Given that I have rejected the argument that the only cause of action was vested in the exclusive licensee, a fifty/fifty split in terms of costs between the first and second Claimants is appropriate. That means that 25% of the overall costs are attributable to the costs of each defendant. Since there is agreed to be a 70/30% split between pre and post infringement costs the appropriate deduction is 17.5%.
22. Mr MoodyStuart said that the deduction should be reduced still further because it does not take into account the value of future infringements which have been stopped by the injunction. I do not consider that s.68 is intended to take into account of the value of injunctive relief as a means of reducing the costs sanction. Otherwise the section would frequently have limited consequences, as the injunction may be the main purpose of the proceedings.

Conclusion

23. I conclude that there should be a 17.5% deduction from the overall costs of the claimants. I should add that both sides requested permission to appeal from this decision, which I granted. Whilst awards of costs are discretionary, this was an unusual case, both in respect of the principles that I applied and the way that costs were apportioned. I consider that it is appropriate for it to be reviewed by the Court of Appeal.