England and Wales High Court (Patents Court) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
PATENTS COURT

		Rolls Building 7 Rolls Buildings London EC4A 1NL
		21/12/2011

His Honour Judge Birss QC :

1. This judgment concerns costs and some other matters. It deals with the costs of the case which was the subject of my judgment handed down on 27^th July 2011 [2011] EWHC 2039 (Pat). However, as explained in paragraphs 1 to 4 of that judgment, by the time the matter came on for trial, many of the allegations had fallen away. As a result the trial only concerned the issue of infringement and validity of one patent EP (UK) 0 927 013. That case is only one of the matters which now fall to be considered on the question of costs.
2. This also explains the most startling aspect of the matter before me, the very large sum by way of legal costs which are being sought. The defendants have been successful not only in relation to the case about the '013 patent but also on the other matters. Accordingly they seek an order that the claimants pay their costs. The claimants' calculations put the costs incurred by the defendants together in these proceedings at almost £6.6 million. That is comparable to the sum spent in the RIM v Visto litigation and addressed by Floyd J at paragraph 15 of his judgment [2008] EWHC 819 (Pat). For such a sum to be spent in intellectual property litigation calls for an explanation. The claimants submitted it was the largest costs bill which had been presented to the Patents Court in recent times.
3. The explanation has three aspects, as follows.
4. The first aspect is that the costs are spread between three independently represented parties. Again using the claimants' figures, the costs of the third defendant (SFM) are £4.7 million. The first and second defendants (Smith & Nephew) incurred £1.5 million in costs. The fourth defendant (Dr Law) incurred about £387,000. That SFM incurred the most costs is not surprising since they made most of the running in this litigation but one of the issues arising is an argument about duplication of costs as between SFM and Smith & Nephew.
5. The second aspect is that costs are spread between multiple causes of action. A very substantial quantity of costs was incurred in relation to the claimants' claim for misuse of confidential information (and breach of contract). This was discontinued shortly before trial. There were also two further patents in issue. One case ('650) was discontinued shortly before trial. For the other ('912) the claimants agreed to submit to judgment for its revocation shortly before trial.
6. One can see the breakdown by using the figures for SFM's costs. These are based on a total of £4.1 million (which is lower than the £4.7 million figure used above but the difference does not matter for the moment). SFM's total of £4.1 million can be broken down as follows:

i) Breach of Confidence: £2,137,457.64

ii) Patents (generally) £99,203.28

iii) Patent '013 £440,090.73

iv) Patent '912 £247,892.23

v) Patent '650 118,745.26

vi) Trade marks £184.10

vii) Disclosure £589,425.41

viii) Pleadings £23,169.33

ix) Hearings £168,702.16

x) General £122,585.82

xi) Silverisation £4,432.08

xii) Miscellaneous £181,891.96

Total: £4,133,177.00

7. Some of the costs could be attributed to particular parts of the case while others could not be. Disclosure (item (vii)) was largely but not exclusively related to the confidential information case. Some costs were generic to the patent cases but could not be broken down further (item (ii)). What this breakdown shows is that the costs attributable to the patents aspect of these proceedings are not out of line with the sorts of levels of costs one sees in High Court patent cases.
8. The third aspect of the matter is the confidential information case itself. Since the confidential information case was discontinued before trial, I did not hear it and I am not in the same position as a judge who heard the trial to comment on the costs. However I did hear a number of substantial interim applications in these proceedings over a period of months, mostly related to the confidential information case and I can say with some confidence that it was a heavy case. The case was concerned with ConvaTec's trade secrets relating to the manufacture of carboxymethyl cellulose fibres and wound dressings using those fibres. It also related to other research ConvaTec had carried out. I am not surprised that the costs associated with that case, which came almost to the court door, were very substantial. Also, in contrast to the position before Floyd J in RIM, in this case I do not have overall cost estimates from the unsuccessful party to use as a comparison. On some matters of detail, when the claimants' costs might have been relevant, the claimants' contended that their costs (on that point) were comparable to the defendants' costs. On other occasions they contended that the defendants' costs incurred were too high. I cannot assume that the claimants' overall costs were comparable to the defendants', but it does seem to me that that I can safely assume that whatever their costs were, the claimants' overall costs were not so radically different from the costs incurred by the defendants as to make a striking comparison. If the difference had been of the order which emerged in the RIM case, I believe the claimants would have put forward overall figures for their costs. Of course that does not mean the level of expenditure was necessarily justifiable but it seems to me it is another indication that this trade secrets confidential information case was costly.
9. Finally I should mention proportionality. This case was concerned with the question of whether the claimants had to face a competitor to their carboxymethyl cellulose based Aquacel product in the shape of the defendants' Durafiber product. The claimants' aim in these proceedings was to establish, if they could, that Durafiber could not be lawfully made and sold. They failed. Since the fibres for Durafiber are made in the UK, had they succeeded the result would have protected the worldwide position. Worldwide Aquacel has made sales of $2 billion since 1996 and is worth £100 million per year. Aquacel sales in the UK for the first 9 months of 2010 were £13.45 million. While the level of costs expenditure in this case has been very high indeed, the stakes were much higher.

The issues

10. The issues which fall to be decided are these:

i) Confidential information discontinuance

ii) Smith & Nephew's costs – duplication

iii) Smith & Nephew's costs – the trade mark point

iv) Payments on account of costs

v) Declaration of invalidity

11. In relation to items (i) to (iv) above, I gave my ruling at the hearing on the 8^th November so that the matters could be dealt with then and there, with reasons to follow. These are those reasons. In relation to item (v), which is not about costs, I directed that I would resolve the issue between the parties on paper if it could not be agreed. It was not agreed and I will deal with it.
12. At the hearing Piers Acland QC and Brian Nicholson instructed by Latham & Watkins appeared for the claimants, James Mellor QC and Miles Copeland instructed by Bristows appeared for Smith & Nephew (the first and second defendants), Justin Turner QC and Mark Chacksfield instructed by Slaughter and May appeared for SFM, Andrew Norris instructed by Kingsley Napley appeared for the fourth defendant.

(i) Confidential information discontinuance issue

13. Ordinarily when a claimant discontinues a claim, they pay the defendant's costs. In this case ConvaTec discontinued the breach of confidence claim and the defendants seek their costs. ConvaTec contend that the circumstances in this case are such that a different order should be made. In order to put that submission into context it is necessary to understand some of the background and progress of this claim.
14. The businesses of SFM and ConvaTec have a shared history. The details of the restructuring arrangements and how they led to the position today in which ConvaTec and SFM are competitors do not matter. As part of the restructuring arrangements there were agreements in place which included licences of confidential technical information for certain limited purposes. I have been told in general terms that the licences were limited to use of the know how for the purposes of what are called the Alginate and Micropake businesses but the scope of these licences is not in issue before me. There was a restrictive covenant which prevented SFM from competing in the cellulose field. It expired in April 2007.
15. Until June 2007 the fourth defendant, Dr Law, worked for ConvaTec. He left and joined SFM. At SFM he worked as a research scientist on the development of cellulose ethyl sulfonate gelling fibres (CES fibres). Durafiber uses these CES fibres. He also worked on an aspect of this technology involving silverisation. This led to a patent application being filed by SFM which names Dr Law as the inventor.
16. In the summer of 2010 ConvaTec discovered that Smith & Nephew were launching the Durafiber product to compete with Aquacel. As a prudent organisation ConvaTec took steps to see to what extent their intellectual property gave them the right to prevent Durafiber competing with them. Various causes of action were identified and full letters before action dated 19^th October 2010 were sent to Smith & Nephew and to the manufacturer of the fibres used in Durafiber, SFM.
17. The letter to SFM made four claims: breach of contract, breach of confidence, entitlement to an SFM patent application published as WO 2010/061225, and infringement of the '013 patent. The patent infringement claim was the one I adjudicated upon in my July judgment. The entitlement claim relates to silverisation. That is not relevant to Durafiber itself since the basic Durafiber product is not silverised. Since the issues relating to silverisation did not have the same urgency as issues relating to Durafiber itself, all silverisation issues were split off from these proceedings to be dealt with separately.
18. The breach of contract and breach of confidence claim went together. The case was put in terms of breach of contract based on the terms of the remaining agreements arising from the corporate rearrangements in the past. ConvaTec's case was that the process of development and manufacture of the cellulose fibres and other material for Durafiber incorporates or is based on, at least in part, ConvaTec's technical information, know-how and confidential information. ConvaTec relied on the '225 patent application but also on other matters. They contended that all of their proprietary information relating to the manufacturing process conditions and the engineering and development data of cellulose products for wound therapy embodied in Aquacel would have been highly relevant to the development of Durafiber. They also relied on development work done at ConvaTec on the commercialisation of cellulose phosphate fibres and the development of non-solvent based processes for making cellulose derivatives. They alleged that Dr Law had access to a Cellulose Phosphate study at ConvaTec, to ConvaTec's work on sulfonate derivatives and argued that this was likely to have been an important precursor in the development of Durafiber.
19. On the same day ConvaTec's solicitor wrote a corresponding letter before action to Smith & Nephew. This put forward four causes of action. First, that sale of Durafiber infringed the '013 patent. Second, that another patent, the '912 patent, was infringed. Third an allegation that Smith & Nephew had acquired ConvaTec's confidential information from SFM in circumstances where Smith & Nephew knew or ought to have know it was not authorised and fourth the tort of inducing the breach of contract or breach of confidence by SFM. The alleged breaches by SFM were the ones set out in the letter of SFM and the letter to Smith & Nephew cross-referred to it.
20. Proceedings were issued and served on 8^th November 2010. ConvaTec sought an interim injunction restraining sales of Durafiber pending trial. On 10^th November it emerged that Dr Law had taken with him from ConvaTec a very large number of documents in electronic form. They were on a CD-ROM. ConvaTec were told immediately. On the application for interim relief, the defendants offered undertakings not to sell Durafiber until a full hearing could take place on 8^th December. The undertakings are embodied in an order of Warren J of 12^th November. ConvaTec's case on misuse of confidential information at that time was supported by an expert's report (Professor Kennedy).
21. On 8^th December 2010 the case came before me. By then the parties had agreed that the defendants would undertake not to sell Durafiber pending an expedited trial. The question was whether the trial should be expedited. The case was clearly urgent and I directed that the hearing should be expedited. The matter was listed for trial in July 2011. At that stage the trial was estimated for three weeks given the number of issues to be considered.
22. At that hearing it was also common ground that there needed to be an amended pleading from ConvaTec on the issue of breach of confidence. The case needed to be formulated properly. Experience has shown that it is particularly important for allegations of misuse of confidential information to be properly formulated and pleaded by claimants (see e.g. Laddie J in Ocular Sciences [1997] RPC 289). A date of 21^st December 2010 was set for the Amended Particulars of Claim. Disclosure in the proceedings was set for 14^th February 2011.
23. Given that Dr Law had a CD-ROM's worth of ConvaTec documents in his possession, one can imagine why it might seem that there were good grounds for a case of misuse of confidential information. However the contention that Durafiber had been developed that way never could necessarily follow from the mere existence of the CD-ROM. The case needed to be put properly.
24. The Amended Particulars of Claim was served but the plea of breach of confidence was completely inadequate. The defendants did not admit any breach of confidence. It was clear that what needed to happen was for ConvaTec to have access to Dr Law's laboratory notebooks relating to his work at SFM. Disclosure was due in February and took place. Disclosure in this litigation was a very substantial exercise.
25. SFM's position was that they did not know about the CD-ROM until it arose in these proceedings. One can imagine how the general situation on the defendants' side created the possibility of tension between the various defendants. Dr Law was an employee of SFM but at an early stage it was clear that Dr Law and SFM should be separately represented. Smith & Nephew were at a further remove from the matter. Dr Law was not their employee. Moreover the interests of Smith & Nephew and SFM were by no means necessarily fully aligned. SFM would like to supply their CES fibres to Smith & Nephew but if it turned out that SFM were not entitled to do so, perhaps Smith & Nephew could obtain fibres from elsewhere.
26. ConvaTec worked on Dr Law's laboratory notebooks with their expert (Prof Heinze) and on 24^th March 2011 ConvaTec's Re-Amended Particulars of Claim were served. The allegation of misuse of confidential information was completely recast. The thrust of the case now, based on the notebooks, was that Dr Law had used something called a Master Recipe Sheet which embodied ConvaTec's confidential information. Also in the Re-Amended Particulars of Claim was an allegation of infringement of a new ConvaTec patent, the '650 patent. There was a further amendment to the Particulars of Claim on 27^th April to add allegations about a washing and finishing step. The first to third defendants' Defence was re-amended on 12^th May to deal with the new case.
27. On 17^th June 2011 expert evidence was exchanged. SFM's expert, Mr Woodings, included in his report an opinion that all of the information in the Master Recipe Sheet had been published in some ConvaTec patents called the Medicel patents. 6 days later ConvaTec discontinued its entire breach of confidence and breach of contract case. It accepted that the pleaded confidential information was not confidential. The trial was originally due to start on 5^th July. In fact it started on the 11^th and by the time the case was called on, ConvaTec had dropped the allegation of infringement of the '650 patent and consented to revocation of the '912 patent. What was left was the '013 patent.
28. The issue is the costs of the discontinued confidential information case. Mr Acland submits that two matters justify a departure from the normal position on costs. First, delayed notification of the Medicel patents. Seeing the point raised by these patents caused ConvaTec to drop the confidential information case. SFM were alert to the Medicel patent point as early as 14^th April but they did not disclose it to ConvaTec until 17^th June. They should have disclosed it sooner. Also Medicel was truly part of a positive case that the information in the Master Recipe Sheet had been published, but on 12^th May, when SFM's Defence was re-amended, the pleading maintained a non-admission on the point. SFM ought to have disclosed the point on that occasion. Although ConvaTec is liable for SFM's costs on confidential information up to a certain point, ConvaTec should not have to pay SFM's costs consequent on SFM's failure to bring the Medicel patents to ConvaTec's attention.
29. Second Mr Acland takes a point about Dr Law. Mr Acland submits Dr Law failed to provide a comprehensive account of how he had developed Durafiber and in particular the use of the information which he took on his departure from ConvaTec. The Defence filed after the Particulars of Claim were served in December 2010 was effectively a holding defence saying nothing of substance and was if anything positively misleading when it says Dr Law could not recall having copied material while at ConvaTec. If Dr Law had been more willing to explain himself rather than leave it to parties to reconstruct the events from the documents – which were extremely technical in nature and sometimes misleading, the costs would have been significantly reduced. Dr Law took steps which were contrary to his obligations in the litigation, he destroyed documents in the face of the litigation and he did not recall matters at one stage which he subsequently recalled. The consequence of this is said to be that SFM's costs were increased when they ought not to have been, and so ConvaTec should not be liable for that increase and also ConvaTec should only have to pay half of Dr Law's own costs.
30. The aggregate effect of these submissions is substantial. They would reduce the sum owed by ConvaTec by about £1.3 million (£700,000 plus £450,00 off the bill to SFM for Medicel and Dr Law respectively and about a further £200,000 off the bill to Dr Law).

Principles

31. The principles to be applied are as follows. CPR Pt 38 r38.6(1) provides:

Unless the court orders otherwise, a claimant who discontinues is liable for the costs which a defendant against whom the claimant discontinues incurred on or before the date on which notice of discontinuance was served on the defendant.

32. In Erica Brookes v HSCB Bank [2011] EWCA 354 Moore-Bick LJ (with whom Arden and Ward LJJ agreed) approved a summary of the relevant authorities as they then were by the court below. This summary is:

1) when a claimant discontinues the proceedings, there is a presumption by reason of CPR 38.6 that the defendant should recover his costs; the burden is on the claimant to show a good reason for departing from that position;

(2) the fact that the claimant would or might well have succeeded at trial is not itself a sufficient reason for doing so;

(3) however, if it is plain that the claim would have failed, that is an additional factor in favour of applying the presumption;

(4) the mere fact that the claimant's decision to discontinue may have been motivated by practical, pragmatic or financial reasons as opposed to a lack of confidence in the merits of the case will not suffice to displace the presumption;

(5) if the claimant is to succeed in displacing the presumption he will usually need to show a change of circumstances to which he has not himself contributed;

(6) however, no change in circumstances is likely to suffice unless it has been brought about by some form of unreasonable conduct on the part of the defendant which in all the circumstances provides a good reason for departing from the rule.

33. Moore-Bick LJ then went on to deal with a later case, Messih v MacMillan Williams [2010] EWCA Civ 844, which had not been decided when this summary was prepared. In that case a claimant sued two defendants and obtained all he could hope to achieve in the case in a settlement with one defendant. So he discontinued the claim against the second defendant and sought an order that he be under no liability as to costs. The claimant argued he had acted reasonably and responsibly in avoiding the need for a trial. The Court of Appeal (Patten LJ with whom Elias and Ward LJJ agreed) held that he was liable for the costs. The claimant's natural desire to settle the claim in full against one defendant did not override the entitlement of the second defendant to be paid their costs when the claimant chose no longer to pursue them.
34. Moore-Bick LJ summarised the overall position as follows in paragraph 10:

It is clear, therefore, from the terms of the rule itself and from the authorities that a claimant who seeks to persuade the court to depart from the normal position must provide cogent reasons for doing so and is unlikely to satisfy that requirement save in unusual circumstances. The reason was well expressed by Proudman J. in Maini v Maini: a claimant who commences proceedings takes upon himself the risk of the litigation. If he succeeds he can expect to recover his costs, but if he fails or abandons the claim at whatever stage in the process, it is normally unjust to make the defendant bear the costs of proceedings which were forced upon him and which the claimant is unable or unwilling to carry through to judgment. That principle also underlies the decision of this court in Messih v MacMillan Williams. There may be cases in which it can be said that the defendant has brought the litigation on himself, but even that is unlikely to justify a departure from the rule if the claimant discontinues in circumstances which amount to a failure of the claim.

35. Before me, Mr Acland accepted that special circumstances are needed to displace the general rule that the claimant bears the costs. That is a fair encapsulation of the point. The Messih case shows that the fact that a party who discontinues may have behaved responsibly and reasonably in doing so does not mean they will avoid the normal effect of CPR r 38.6. The position following discontinuance is not the same as the position after a trial in a patent case when apportionments are often made on an issue by issue basis.
36. In argument I was handed a copy of the judgment of the Court of Appeal in Fresenius Kabi Deutschland GmbH v Carefusion [2011] EWCA Civ 1288 which had been handed down that morning for me to read after the hearing. This is the case in which Lewison LJ, giving the judgment of the court, emphasised that CPR r 38.6 applies in patent case as much as in other cases, thereby bringing Earth Closet orders to a final end. Nothing in that judgment alters the above analysis of the law. Of course the case I am considering in relation to discontinuance is not a patent case in any event.
37. I now turn to deal with the two matters relied on which are said to amount to special circumstances.

Delayed notification of Medicel

38. Dr Turner for SFM took the lead in dealing with this point. He submitted there were no circumstances in this case which justified a departure from the normal position that ConvaTec should bear the costs of the discontinued breach of confidence (and contract) claim.
39. He made a number of submissions but it seemed to me that the main ones were the following three points. First, while accepting that the Medicel patents were a reason why ConvaTec abandoned their claim for breach of confidence, Dr Turner submitted that it was not the only reason. The claim had a number of further problems in any event. One particular one was that while at one stage the claim was formulated as justifying the prevention of any sale of Durafiber, in Prof Heinze's expert report served in June, ConvaTec appeared to have retreated to an argument that all the breach of confidence had amounted to was such as to give Dr Law a head start in his work of 40-60 days worth of development time. To a large extent (although this is a very compressed summary of the point) the issue was that Durafiber is a CES based product and CES is not the focus of ConvaTec's confidential know how (Aquacel uses CMC). The case being advanced in the report was that some of Dr Law's very early work on a different material (Hydroxyl Ethyl Cellulose or HEC) used data from a CMC recipe sheet. While this might justify a temporary springboard injunction in some cases, in this case ConvaTec had already had the benefit of interim undertakings keeping Durafiber off the market for longer than that, since November 2010.
40. Another problem was that although the main thrust of ConvaTec's claim was indeed based on information which turned out to have been published in the Medicel patents, ConvaTec also had a claim put on a wider basis. Information not in Medicel was relied on and the Medicel patents do not explain why that claim was dropped. SFM submit that one reason the claim was dropped was because it was going to fail anyway for other reasons and the fact the wider case was dropped is put forward as an indication of that.
41. The second point relates to ConvaTec's own position in relation to the Medicel patents. The Medicel patent applications were applied for by one of ConvaTec's predecessor companies. They are part of ConvaTec's portfolio. Dr Turner submitted that any competent lawyer involved in a technical confidential information case would know that the relevant patent families must be reviewed to check whether the information thought to be confidential has in fact been published. He submitted that ConvaTec have not explained what due diligence was done to see if the ratios in the recipe sheets were in fact confidential. Of course, as it turned out, the ratios were not confidential. Mr Bishop was the ConvaTec witness whose evidence it was that the information was confidential in the first place which of course turned out to be wrong. He was asked about this when he gave evidence at the trial of the '013 patent and he explained there that he had not checked the Medicel patents. He had checked other patents and thought that was sufficient. Dr Turner questioned whether it should ever have been a matter for Mr Bishop alone or whether the ConvaTec legal team ought to have been involved in that checking process.
42. The third point relates to the timing whereby SFM raised the Medicel point. SFM's solicitor Susan Middlemiss explained what had happened in her sixth witness stated dated 1^st November 2011. SFM first realised the possible significance of the Medicel patents on 14^th April. However it needed to be investigated carefully as it was not easy to understand. The material was given to junior counsel on 5^th May and he analysed the material and produced a note on 21^st May. The experts' reports had been due to be exchanged on 20^th May but that date was put back to 17^th June, which is when Mr Woodings' report raised the Medicel patents. Thus in answer to the point that the Re-Amended Defence served on 12^th May should have contained the Medicel patents, Dr Turner pointed out that junior counsel's table was only produced afterwards, on 21^st May.
43. Dr Turner also submitted that there was no reason why SFM should have assumed that ConvaTec were unaware of the Medicel patents. As far as SFM were concerned they had a number of answers to the confidential information case. Why should SFM have assumed that ConvaTec had failed to review their own patents? It is only with hindsight now that ConvaTec discontinued after seeing this point, that the Medicel patents take on the significance they do.
44. In answer, Mr Acland pointed out that the confidential information case was not limited to springboard relief but also included a claim that SFM's investigation work through to the CES product would never have reached the end at all without the initial springboard. He accepted that on due diligence the evidence was simply that of Mr Bishop, but submitted that was sufficient. Mr Bishop thought (genuinely but wrongly as it turned out) that the information was confidential. The key date, he submitted, was 12^th May when the Defence was amended. By that date Mr Acland argued it was clear that SFM were aware of and understood the significance of the Medicel patents. As regards the breadth of the confidential information case, Mr Acland accepted that some information was not touched by the recipe sheet but that does not alter the fact that it was the absence of confidentiality in the recipe sheet information which was the reason the claimants discontinued.
45. Despite Mr Acland's submissions I am not satisfied that the way in which the Medicel patents arose in this case and led to the discontinuance by the claimants is a matter which is sufficient to justify departure from the usual position on costs. I am quite sure it is true and I accept that the Medicel patents being raised in Mr Woodings' report on 17^th June was a reason why ConvaTec discontinued the confidential information case. The point fatally undermined a major part of their case. However I am not satisfied that it was the sole reason and I am not satisfied that the position was that simple in any event. The Medicel patents were clearly a new point and it seems to me that the point would need to have been properly pleaded had the matter proceeded any further. By deploying them SFM were moving from a position that they did not admit the information was confidential to a stance that they had a positive case it was not confidential. However it is all too easy for a party with a case which has become more problematic as the litigation proceeds to then seize on a new point raised late in the day, discontinue and then claim that the new point is the sole or major reason why the claim was dropped and its lateness means that the defendant should be penalised. It is impossible to dissect out all the motives and reasoning by a party in litigation of this kind, particularly heavy and technically complex litigation like this confidential information case. On the materials before me it is impossible to know more about ConvaTec's motives and reasoning beyond the point that the Medicel patents were a reason for discontinuing. To be satisfied whether a delay in mentioning Medicel was in fact the cause of the costs incurred in the period between 12^th May and 17^th June one needs to know whether in fact the case would have succeeded but for the Medicel point. The parties do not agree about that. It is unresolvable.
46. What I can say is that it seems to me that there is merit in SFM's point that the misuse of confidence case was becoming weaker and although Mr Acland is right that the claim was not limited to short term springboard relief, an important aspect of the case was developing towards a justification only for such temporary springboard relief. That springboard period would have been shorter than the period of interim relief which had already passed by. For all I know, just prior to seeing Mr Woodings' report on 17^th June, ConvaTec could have taken the view at this stage that their realistically achievable commercial objectives had already been secured with the interim injunction and the chance of getting anything further was low. Seeing the Medicel point then removed any lingering doubt about the chances of securing anything more than they had already achieved. This is pure speculation on my part but it is not inconsistent with ConvaTec's position. It would be a perfectly legitimate pragmatic approach to the litigation but would not justify a departure from the normal costs order under r38.6 and illustrates the difficulty in trying to analyse a party's motives in a situation like this one.
47. I also note that the claim included information which was not in Medicel, and yet when Medicel was raised, that wider claim was dropped too. While no doubt pragmatic to some extent, it seems to me that this indicates that there must have been other concerns in ConvaTec's camp about the confidential information case apart from the point raised by Medicel. One would need to have a trial about whether in fact the case was going to fail anyway. That cannot be appropriate on an application of this kind.
48. While I agree the point would have to have been pleaded, I reject the submission that the point should have been pleaded on 12^th May. Until 24^th March the confidential information case had not been properly pleaded at all. The timing was all highly compressed. Once the point was spotted SFM were entitled to have their counsel consider the matter carefully and counsel's note was not produced until 21^st May. That is not unduly tardy. Parties should not be under pressure to raise every half baked submission that occurs to their advisers (including experts) without having thought it through properly. Furthermore there is merit in the submission that until they had worked through the point with care and in detail SFM were entitled to assume that no matter how much of a killer point it seemed, ConvaTec must be aware of it and have an answer to it. The patents after all were ConvaTec's own patents. It does seem to me that a defendant in those circumstances is entitled to assume that a party claiming technical information is confidential has already checked their own patents in the same field of technology. Experience in litigation shows that one often finds what looks like a knock down point only to discover, when it is raised with the other side, that there is a complete answer to it ready and waiting for you.

Dr Law's conduct

49. Since ConvaTec submitted this point had ramifications not just for Dr Law himself but also for SFM, I heard from both Mr Norris, counsel for Dr Law and Dr Turner, for SFM on this issue.
50. In summary the points taken by the defendants in relation to the argument that Dr Law's conduct had increased the costs of this issue were these. First, to criticise the initial Defence filed in response to ConvaTec's Particulars of Claim as a "holding defence" is wrong and has the matters the wrong way round. ConvaTec's first proper attempt to plead the case, in December 2010 was accepted by ConvaTec to be inadequate. It was wholly inadequate and was a plea of extraordinary breadth. In those circumstances there is no basis for criticising the Defence filed in response at all. The claimants should plead their case of misuse of confidence first. If disclosure is needed then it will be given. That is what happened in this case.
51. Second, SFM could not sit idle and do nothing faced with ConvaTec's initially pleaded case. They had to and did start in effect auditing the whole of what had gone on in the development of Durafiber. This was an enormous job.
52. Third, Dr Law's explanation for what he did came at the proper time – once ConvaTec had formulated their case based on disclosure and the notebooks. Until then there had been no proper plea from ConvaTec. They could have asked for assistance before suing in the first place and before seeking interim relief but in Dr Turner's words instead ConvaTec "shot first and asked questions later".
53. Fourth, Mr Norris submitted that one cannot criticise a witness for not remembering in circumstances in which he has not been cross-examined on the issue.
54. Fifth the allegation of destroying documents is not what it seems. Dr Law did delete some electronic media during the proceedings. It is not something he tried to hide and the media were promptly reconstructed by forensic experts so nothing was lost. Dr Law has not had an occasion in this case to deal with this allegation in detail and has not been cross-examined.
55. Mr Acland maintained ConvaTec's position. His case was that the costs of SFM and Dr Law have been increased as a result of Dr Law's conduct and therefore ConvaTec should not bear those increased costs. One aspect of the matter from ConvaTec's point of view is the CD-ROM. In his eighth witness statement, ConvaTec's solicitor Mr Cohen said that the CD-ROM represented incontrovertible evidence that ConvaTec's proprietary information had been misappropriated and used.
56. First, as a matter of principle, it seems to me that the question is the same one as arose on the first point, in a nutshell whether there are special circumstances. The fact that this is put as being a case in which the costs being claimed have been increased in some way does not make any difference to the principle. Mr Acland faces a higher hurdle than the one which would apply after a trial.
57. I reject the criticism of Dr Law's Defence. It was incumbent on the claimants to plead their case properly. The point being made by Laddie J in Ocular Sciences (supra) about the importance of pleadings in breach of confidence cases was specifically focussed on claimants. He said this "It is well recognised that breach of confidence actions can be used to oppress and harass competitors and ex-employees. The courts are therefore careful to ensure that the plaintiff gives full and proper particulars of all the confidential information on which he intends to reply in the proceedings. If the plaintiff fails to do this the court may infer that the purpose of the litigation is harassment rather than protection of the plaintiff's rights and may strike out the action as an abuse of process." (p359 ln12-19). I do not doubt that had I been asked to strike out the admittedly inadequate Particulars of Claim served in December, the existence of the CD-ROM would have been a reason to wait until ConvaTec had reviewed the disclosure documents and had a chance to formulate their case in that light. That is what happened. But the CD-ROM does not absolve the claimants of the need to formulate their case properly.
58. I do not accept that Dr Law can be criticised in the meantime for the Defence he filed to the inadequate Particulars of Claim. ConvaTec's case is that he should have said in effect "I used the recipe sheets". But at that time the claim was diffuse and broad. The onus was on the claimants to put their case correctly. It was not on the defendants (including Dr Law). It may be noted that if Dr Law had said at that stage that he had used the recipe sheets, he would have been purporting to "admit" to something which ConvaTec now accept was not a wrong. They have abandoned their claim to misuse of confidence relating to those sheets.
59. It seems to me that there is force in the criticism that ConvaTec chose to start litigation on this broad front but it having failed completely are now trying to avoid the consequences. In the passage I have quoted above from Brookes v HSBC, Moore-Bick LJ indicated that even when it can be said that the defendant has brought the litigation on himself, that is unlikely to justify a departure from the rule if the claimant discontinues in circumstances which amount to a failure of the claim. That seems to me to apply here. I can quite see why the CD-ROM means that to some extent Dr Law could be said to have brought the litigation on himself but Mr Cohen's characterisation of it as "incontrovertible evidence" is not the whole story when the misuse of confidence claim I have considered has been discontinued in exactly the circumstances referred to by Moore-Bick LJ. It clearly amounts to total failure of this claim. (I have taken care to say "this" claim because I know there is another claim about silverisation. That is not before me and it is not what these costs relate to).
60. I do not accept that Dr Law's conduct in this case justifies a departure from the normal costs position when a party discontinues a claim.

(ii) Smith & Nephew – the duplication issue

61. Smith & Nephew have incurred some £1.5 million in costs in this litigation. ConvaTec's position is that the vast majority of these costs are not recoverable. This submission is based on the evidence of SFM's solicitor Susan Middlemiss. She explained in her witness statement that SFM and Smith & Nephew agreed that her firm, Slaughter and May, would have responsibility for the evidence and arguments and all other preparation of the case in relation to the confidential information case and the patents. ConvaTec submit that this was entirely reasonable in the circumstances but in the light of it, the most Smith & Nephew's solicitors can justify as reasonable and proportionate costs recoverable from ConvaTec are costs occasioned on a watching brief. Mr Cohen estimates they would be about £140,000. ConvaTec submit it is quite clear that Bristows were instructed to do more than undertake a watching brief.
62. At this stage the issue is one of principle, in other words should I make a special order about Smith & Nephew's costs here. I will deal with the payment on account of Smith & Nephew's costs below.
63. Mr Mellor maintained that his clients' costs were reasonably and legitimately incurred in this case. The order I should make is not a special order. I should order that ConvaTec pay Smith & Nephew's costs on a standard basis to be assessed if not agreed. He made two submissions on the issue of principle. First he relied on the judgment of Aldous LJ in Bristol-Myers Squibb v Baker Norton [2001] RPC 1 and particularly paragraphs 70-73 thereof. In that case the appellants chose to fight the issues of infringement and validity against two defendants. They lost. The trial judge's costs order provided that only one set of costs would be paid by the losing party. How the two separately represented defendants split those costs between them was up to them. The Court of Appeal overturned that order. Both defendants were entitled to their costs reasonably incurred. To decide what costs were reasonably incurred by the defendants by considering what costs a losing client should pay was prejudging the detailed assessment process.
64. Second Mr Mellor submits that despite the manner in which ConvaTec seek to interpret Ms Middlemiss' evidence, in fact substantial useful and relevant work was undertaken by Smith & Nephew's legal team. For example on disclosure Smith & Nephew produced some 40,000 documents to review and that resulted in 550 documents being disclosed. Mr Westmacott for Smith & Nephew gives evidence in his Fourth Witness Statement that the direct costs of the disclosure exercise were £380,000. ConvaTec did not ask for standard disclosure to be limited to SFM and ConvaTec's initial claim for misuse of confidential information contained serious allegations that Smith & Nephew was involved in the misuse although by the time of the pleading on the issue in December, those allegations were not included in the Particulars of Claim. When they received Smith & Nephew's disclosure statement ConvaTec's solicitors did not complain to Bristows that a disproportionate exercise had been undertaken, they raised queries and further queries in correspondence. Mr Westmacott also gives further examples of useful work carried out in this litigation by the Smith & Nephew legal team in his statement. There is no need to set them out here.
65. In reply Mr Acland accepted that the basic order to be made was that ConvaTec should pay Smith & Nephew's costs to be assessed on a standard basis but that this was a case in which an order should be made now limiting the nature of the issues which could arise on the detailed assessment. As Aldous LJ pointed out in the Bristol-Myers case itself (paragraph 73) the court can always order at this stage that costs in a certain category should be disallowed and can also draw the attention of the costs judge to matters which he believes require particular investigation. Mr Acland submitted that on the facts of this case, Ms Middlemiss' evidence as to the arrangement between Smith & Nephew and SFM meant that this was an entirely different category of case. In summary he submitted I should direct that Smith & Nephew should not recover any costs which were not reasonably necessary in the light of the agreement.
66. I am quite satisfied that this is not a case in which I should make an order purporting to limit the scope of the costs assessment in relation to Smith & Nephew's costs. Smith & Nephew are entitled to an order for their costs to be paid by ConvaTec, subject to a detailed assessment on the standard basis if not agreed. I do not know enough about either the precise relationship between Smith & Nephew and SFM as it developed throughout this litigation or what work was done by whom, in order to make any sort of order of the kind urged on me by Mr Acland. It may be entirely inappropriate.
67. I am in a position to state the obvious, that on a detailed assessment one matter which is worthy of careful investigation is whether and to what extent any arrangements between SFM and Smith & Nephew mean that particular costs might not have been reasonably incurred. However I do not doubt that ConvaTec would have made that point anyway and I should emphasise that in saying this I am not prejudging the question of whether the arrangements between Smith & Nephew and SFM make any difference. They were both being sued and were separate parties with separate interests.

(iii) Smith & Nephew – the trade mark issue

68. At one stage in these proceedings the case involved a claim for trade mark infringement. ConvaTec's case was that a Smith & Nephew brochure for Durafiber which contained references to ConvaTec's Aquacel product amounted to trade mark infringement because (in summary) it was unfair comparative advertising. The dispute was settled save in relation to costs. The settlement was embodied in a consent order of Mann J made on 9^th March 2011. That order records an undertaking by Smith & Nephew not to make the brochure available in the United Kingdom, an order staying all further proceedings and providing for ConvaTec's costs of a counterclaim to be paid by Smith & Nephew and then, at paragraph (3):

The issue of liability for the remainder of the costs relating to the trade mark infringement claim be reserved to the trial judge.

69. Mr Mellor submits that Smith & Nephew's costs should be paid by ConvaTec save for a £15,000 reduction. He contends that ConvaTec knew about the brochure before the letter before action in this case but that letter, despite its length, did not mention the trade mark claim. Once the matter was raised, Smith & Nephew took the pragmatic decision to settle without admission of liability. If ConvaTec had complied with the pre-action protocol the matter could have been resolved without recourse to external lawyers or at a significantly reduced cost. £15,000 would have been incurred in any event and so are not included but the balance of Smith & Nephew's costs, some £134,818 are claimed. Mr Mellor submits that the reason the claim was not raised in correspondence in advance was that it was being deployed as part of the application for interim relief at the outset of these proceedings. It was grist to the mill in the all out war to keep Durafiber off the market. As a fall back Mr Mellor submits I should make no order as to costs.
70. Mr Acland's submission is entirely the other way round. He contends that there is no doubt ConvaTec are the successful party. Whilst not admitting liability Smith & Nephew changed their brochure into a form which met ConvaTec's approval and undertook not to distribute the original brochure. The litigation was necessary because when the matter was raised Smith & Nephew initially refused to provide the undertakings sought. Mr Cohen's evidence is that he would expect ConvaTec's costs to be broadly similar to the gross costs incurred by Smith & Nephew, i.e. about £150,000. So he seeks an order in ConvaTec's favour.
71. For the principles applicable in a situation like this one Mr Mellor cited BCT Software v Brewer (Court of Appeal) [2003] EWCA Civ 939 and Venture Finance v Mead (Court of Appeal) [2005] EWCA Civ 325. As Chadwick LJ said in the Venture Finance case (paragraph 10) it is not in dispute that a judge has jurisdiction to make an order for costs in proceedings in which all substantive issues have been disposed of by agreement but he it not obliged to do so and the dangers in embarking on that course were illustrated in the BCT Software case. In BCT Software Mummery LJ observed at paragraph 9 that in the course of counsel's submissions they "dipped into the detail of the compromised action to such an extent that, at times, there was an uncomfortable feeling that this court was being asked to try the action, which, because it has settled, has never been tried by anyone".
72. In paragraph 23 of his judgment in BCT Software, Chadwick LJ held that unless the court is satisfied that it has a proper basis of agreed or determined facts upon which to decide whether the case is one in which it should give effect to the general rule (i.e. that the unsuccessful party pays the costs of the successful party) or a "different order" (and if so what order) it must accept that it is not in a position to make an order about costs at all.
73. Mr Mellor also mentioned Brawley v Marczynski (which is referred to in Venture Finance) as authority for the proposition that where there was an obvious winner the court can decide the costs.
74. Mr Acland referred me to the brochure in question and submitted it was unfair and misleading in its comparison between Durafiber and Aquacel. He also relied on a decision of an Australian tribunal called the Medical Technology Association of Australia (MTAA) which held that a very similar brochure contained unsubstantiated claims about Aquacel.
75. I am not satisfied that I have a proper basis on which to decide to make an order that one party should pay the other party's costs in relation to this trade mark issue. There is something in Smith & Nephew's submission about the manner in which ConvaTec pursued this allegation and there is something in ConvaTec's submission about the merits of the claim. However it seems to me that in this case to actually reach a point where I can form a proper view on either of these points involves dipping into the detail and trying a compromised claim. ConvaTec are entitled to argue that they conducted the proceedings properly (and Mr Acland did so) and Smith & Nephew are entitled not to accept that the brochure is infringing under UK law and to point out that the Australian Code of Conduct applied by the MTAA is quite different from UK law (Mr Mellor did so). I cannot resolve the debate about the merits of the trade mark case without making findings of fact essentially out of thin air. I am not prepared to do that. In this case it would not be fair to consider the conduct allegations raised by Smith & Nephew without doing so against a background of the underlying merits of the claim. The order will be "no order" as to costs.

(iv) Payments on account

76. It was common ground that some form of payment on account of costs should be made. The principles on which to act were also not in dispute. By the time the matter came to be debated at the hearing the legal teams for ConvaTec and Dr Law had agreed that the interim payment for the 4^th defendant would be £200,000. The outstanding issues related to SFM and Smith & Nephew.
77. I will deal with SFM first. ConvaTec accepted that the normal quantification of an interim payment would be 50% of a properly adjusted bill but in this case they contended that there was good reason to believe that SFM would recover a significantly lower percentage. Mr Cohen's evidence put the figure at 30% recovery. ConvaTec contended that the appropriate interim payment in favour of SFM in this case was £1 million. That £1 million figure was arrived at by taking 30% of £3.3 million. £3.3 million was in turn derived from starting with SFM's actual costs of £4.7 million and making deductions for things like the delayed notification for Medicel, the increase in SFM's costs caused by Dr Law as well as £85,000 for certain prior art which failed. I have decided the Medicel and Dr Law points in SFM's favour and those deductions therefore do not apply. I understand that the parties are agreed about the prior art deductions.
78. ConvaTec contend that one can see that SFM's costs actually incurred are too high. There has been excessive duplication from too many fee earners charging more than is normally allowed. The large size of the Slaughter and May team, high charge out rates and what Mr Cohen calls inefficient management have all contributed to an excessive level of costs.
79. However Mr Cohen's evidence does not grapple with the detail to any great extent. The arguments about size of legal team, charge out rates and efficiency are generic. Mr Cohen explained that time did not permit a detailed analysis. I can accept that to a limited extent in the circumstances as they arose because SFM's highly detailed evidence came shortly before the hearing. Indeed ConvaTec did seek an adjournment of the hearing, which I refused. However it seems to me that ConvaTec have known for many months when this hearing was going to take place and they were in a position to analyse their own costs positioning in that period. It is generally a persuasive point in these circumstances to be able to point to a task or topic in litigation and use the sums spent by one side on it as a comparator to the costs incurred by the other side. Of course in many cases there are good reasons why the costs are different, even very different but that sort of information allows a comparison to be made. Indeed on disclosure Mr Cohen specifically puts forward his clients' disclosure costs as a comparison with the figures produced by Ms Middlemiss but it seems to me that they are not helpful unless they are placed in the overall context of a party's total costs. One is never sure that figures are comparing like for like unless the overall context is available. I do not accept that Mr Cohen's disclosure figures in isolation can be taken as a reason to reduce the interim payment to be made.
80. A similar exercise could have been done breaking down the costs and allocating them to the various actions here (the 013 patent, the 912 patent, the confidential information case). I can see no good reason why that information would not have been available to ConvaTec. Mr Cohen states that he thinks SFM's costs incurred in the patent cases are manifestly excessive. I would be more convinced of this point if I knew what ConvaTec's own overall figures were. Detail would not have been required. These were (or were in the case of '650 and '912) going to be hard fought and heavy patent cases. I am not satisfied that SFM's costs were excessive at all.
81. Looking at the matter overall, although an interim award of about £2.3 million is very large indeed, I am not satisfied that I have any proper basis to reduce it. It is 50% of SFM's total costs in this litigation and, subject to some agreed reductions which are a tiny proportion overall, ConvaTec are liable to pay all of SFM's costs. I will make the order sought by SFM.
82. Smith & Nephew also sought 50% of their total costs. For this purpose the total was just under £1.4 million and so the sum sought was £690,000.
83. Three matters fall to be considered in relation to the level of interim award for Smith & Nephew. First the duplication issue. Had I made an order limiting the issues to be considered on the detailed assessment then that would obviously have a knock on effect in relation to the interim award. However I have made no such order. Second, Mr Acland pointed out that although ConvaTec had raised breach of confidence with Smith & Nephew in the letter before action, Smith & Nephew were not sued for breach of confidence. The claim was against SFM and Dr Law. Disclosure was indeed sought from them on the issue but nevertheless they were not sued on it. Third, Mr Acland submitted that the disclosure task Smith & Nephew had to perform was a relatively easy one in the circumstances and did not justify substantial costs.
84. I do not accept that there is a solid basis for the third point but it does seem to me that there is force in Mr Acland's second point. While Smith & Nephew's reasonably incurred costs in relation to disclosure on confidential information will be recoverable I have the distinct impression that some of Smith & Nephew's costs related to the confidential information case more generally. Whether or not they will be recoverable is less clear to me given that, as Mr Acland points out, Smith & Nephew were not sued. They may be perfectly reasonable in the circumstances given the letter before action and the overall conduct of the case as a whole but it seems to me that I should reduce the interim award somewhat to cater for this risk.
85. The other issue which concerns me is that there may in the end be some force in Mr Acland's submission about duplication in the sense that it may turn out that some costs were not reasonably incurred even despite that fact that Smith & Nephew had separate interests and were entitled to be separately represented. On the information available to me my best guess is that if there is anything in it at all (and there may not be), the effect will be marginal. However it is a factor which risks reducing the overall costs and which I should take into account.
86. I will order that ConvaTec pay £500,000 on account of Smith & Nephew's costs.

(v) Declaration of invalidity

87. ConvaTec sued on European patent EP (UK) 1,085,912 but before trial they dropped the case and agreed to submit to judgment for its revocation. Accordingly the order I am asked to make will include a paragraph revoking that patent. There was no dispute about that order.
88. The form of the overall order I am to make has been agreed between the parties save for one point. SFM want the order to include a declaration that the '912 patent is invalid. Dr Turner submitted that shortly before trial SFM found evidence which they contend showed prior use and therefore that the patent was invalid. One can infer that that is why Convatec are submitting to revocation. Moreover a declaration by the English court that the patent is invalid may be useful elsewhere in Europe in relation to other national designations of this European patent.
89. Mr Acland explained that his clients were submitting to revocation but did not accept it was appropriate to make the declaration.
90. It is well established that the Court has a jurisdiction to make declarations even without having conducted a full trial on the point. They can be made by consent and by default. However the jurisdiction is always discretionary. My attention was drawn to the words of Scarman LJ in Wallersteiner v Moir [1974] 1 WLR 991 CA. He said that the power should be exercised only in cases in which to deny the declaration would be to impose injustice on the claimant.
91. I can understand why the claimants in the claim for revocation of this patent (SFM) wish the court to declare that the '912 patent is invalid. From their point of view, they were sued on the patent, counterclaimed for its revocation on the ground of invalidity, found what they regarded as a strong case of prior use and, just before trial, the patentee dropped the case and submitted to revocation. But the patentee can in a sense live to fight another day in other states of the European Patent Convention with what is really the same patent. The business is an international one.
92. However this case is not like the one before Laddie J in Connaught Laboratories Patent [1999] FSR 284 in which the judge had read into the case in the process of preparing for trial and was in a position to form a view about the invalidity of the patent before him. There an order for revocation was made despite the fact that the patentee had decided to surrender the patent late in the afternoon on the day before trial. Before me, the '912 patent was dropped in advance of the trial and before the final preparation for trial. Although I did have occasion to read it and to consider the new prior art when the application was made to amend the pleadings to include it, I have never had to consider the merits of the case.
93. As a matter of discretion I will not make a declaration in this case. It would not be a declaration by default nor would it be one made by consent. A declaration in these circumstances could be misunderstood as a statement that I had been in a position to form a view that the patent was indeed invalid. I have not been in that position. No doubt it would be odd for ConvaTec to have submitted to the revocation of their patent if they did not think it was invalid but that is a matter for them.