A recent decision of the High Court provides some useful clarification as to when the Court will exercise its discretion in relation to pre-action disclosure, particularly where the application relates to quantum when a split trial is likely to be ordered.
Ticketogo Limited (“Ticketogo”), the proprietor of United Kingdom Patent No. 2 391 101 entitled ‘Ticketing System’ (the “Patent”) does not work the invention itself but instead offers a licence to transport and entertainment operators whose practices it alleges are infringing the Patent which relates to a method for the issue a ticket over the internet which contains a bar code in an image form. The Big Bus Company Limited (“Big Bus”) is a well-known operator of open top bus sightseeing tours, which also uses an online ticketing system.
On 2 October 2012, having recently licensed the Patent to other UK coach travel operators, Ticketogo approached Big Bus with the allegation that Big Bus was infringing the Patent and proposing by way of a resolution, the grant of a licence under which big bus could continue its practices. However, Big Bus rejected this proposal on the basis that its ticketing system did not fall within the claims of the Patent and therefore a licence was not required. This was disputed by Ticketogo, who required that Big Bus either (i) enter into a licensing agreement, or (ii) fully explain its position in respect of infringement and validity. Ticketogo said that it would bring proceedings for infringement in the absence of such clarification.
Proceedings were not commenced by Ticketogo but nearly three years later, presumably following further correspondence between the parties, Big Bus made an application for pre-action disclosure (the “Application”) in which they sought an order for the disclosure and inspection of all licences granted under the Patent and, in particular, in relation to 44 named licensees. The identity of the licensees signed up by Ticketogo were a matter of public knowledge because the licences had been recorded at the UK Intellectual Property Office. The proposed order contained provision for a confidentiality club to be agreed or determined by the Court.
Big Bus was concerned at the considerable expense of patent infringement proceedings and at the irrecoverable costs which might be incurred even if Big Bus would eventually succeed at trial by obtaining a declaration of non infringement and/or an order revoking the Patent. Disclosure of the existing licences was therefore desirable, it argued, since it would allow Big Bus to establish the true value of Ticketogo’s claim and thereby assist it in reaching a commercial decision on whether or not to take a licence as the means by which to resolve the dispute.
Big Bus relied upon the fact that Big Bus and Ticketogo would likely be the parties to any subsequent proceedings, and that Ticketogo would have to disclose the requested documents under its disclosure obligations as part of any litigation. Disclosure before proceedings had been started would therefore be desirable in order to:
- Dispose fairly of the anticipated proceedings;
- Assist the dispute to be resolved without proceedings; and
- Save costs.
Ticketogo disputed the Application on the basis that:
- if Ticketogo brought proceedings for infringement of the Patent against Big Bus, it would claim an inquiry as to damages alternatively an account of profits and there would be a split trial. If Ticketogo were unsuccessful on liability, there would be no proceedings to determine quantum and therefore no disclosure of documents relating to quantum;
- even if Ticketogo were successful on liability, it might elect for an account of profits and in that event, the licences would not be relevant; and
- even if Ticketogo elected for an inquiry as to damages, it was not the case that all the licence agreements would be disclosable. At most, only a sub-set would be disclosable.
In its decision, the Court noted that the application required a two-stage approach. The first stage is to consider whether the jurisdictional tests are satisfied and, if they are, the Court must then consider whether, as a matter of discretion, an order should be made.
The Court considered that Big Bus plainly satisfied the first two jurisdictional tests. It was not necessary for Big Bus to show that the proceedings were likely; it was sufficient that Ticketogo was the proprietor of the Patent and Big Bus was an alleged infringer, and therefore they would be the likely parties to any proceedings.
The Court was also satisfied that some of the documents requested would fall within Ticketogo’s disclosure obligation, but only in respect of a sub-set of documents sought by Big Bus.
The Court disputed Ticketogo’s arguments for the following reasons:
- It was not inevitable that there would be a split trial. Although this is usual, the Court would have power to order that liability and quantum be tried together. Therefore, the obligation to give discovery extended to documents relating to quantum even if there was a split trial, unless the Court made an order to limit discovery. Standard disclosure extends to documents which adversely affect the disclosing party’s case or support another party’s case. This includes their case on quantum. The fact that the Court will normally exercise its discretion in favour of staged disclosure does not undermine the fact that, in principle, the duty of standard disclosure extends to documents relating to quantum.
- It is irrelevant that, in theory, Ticketogo may elect for an account of profits. The Court has to consider the issues that are likely to arise and the Court considered it more likely that Ticketogo would elect for an inquiry as to damages since, for an account of profits, it would have to show that the use of the patented system was the cause of Big Bus’ profits rather than the occasion for them.
- Whilst it cannot be concluded that all licences granted by Ticketogo under the Patent are sufficiently comparable to fall within Ticketogo’s duty of standard disclosure on an inquiry as to damages, the Court did not accept that that duty would be limited to licences structured on a standard fee per ticket basis, as Ticketogo had argued. The Court considered that licences structured on other bases, such as payment of a lump sum royalty or a royalty calculated as a percentage of turnover or profits, would also be sufficiently comparable. The Court therefore concluded that the duty of standard disclosure would extend to all licences in the transport sector, but not the entertainment sector.
The Court held that, in light of the fact that parties to intellectual property disputes often spend large sums of money litigating issues on liability when the costs incurred were entirely disproportionate to what was at stake in terms of the claim, Big Bus had successfully proved the desirability of early disclosure. The Court added that the Courts have recognised the desirability of some disclosure as to quantum being given at an early stage; however, it acknowledged that it had resisted the expense of full disclosure of documents relating to quantum being given prior to liability being established in cases where a split trial was likely to be ordered, as this would defeat part of the object of a split trial.
In deciding whether or not to exercise its discretion, the Court rejected Ticketogo’s submission that it would be time-consuming and costly for Ticketogo to seek the third parties’ consent to inspection of the licences on the basis that all that would be required is a letter in a standard form sent to all licensees notifying them of their right to object and inviting them to communicate any disputes to Big Bus’ solicitor. After this, the onus would be on Big Bus to address any objections, for example by way of a confidentiality club.
The Court also considered Ticketogo’s submission that the existing licensees had entered into the licences without the benefit of disclosure of the kind sought by Big Bus. The Court again rejected these points on the bases that: (i) Big Bus should not have to fight and lose on infringement and validity in order to find out what it would have to pay by way of damages; and (ii) Big Bus should not be obliged, if it does not wish to litigate, to accept whatever royalty rate Ticketogo sees fit if a Court would award less by way of damages.
Accordingly, the Court exercised its discretion in favour of disclosure and made an order for pre-action disclosure in relation to all licences under the Patent granted to licensees in the transport sector.
This decision serves as a reminder to potential parties to litigation that the Court will exercise its discretion in relation to pre-action disclosure where it believes granting disclosure is desirable in order that settlement between the parties might be achieved. The Court will, however, bear in mind the scope of disclosure requested regarding whether this would fall within the parties’ disclosure obligation as part of the proceedings, as well as whether the request is proportionate in terms of time and costs. Nonetheless, this may be a beneficial pre-litigation tactic.