In Adaptive Spectrum & Signal Alignment Inc. v British Telecommunications Plc, [2014] EWHC 4447 (Pat), the English Patents Court ordered the victorious patent owner in patent infringement proceedings to provide early disclosure to the defendant of confidential licence agreements. This is a commercially significant decision, as in appropriate cases it can provide a losing defendant with a strategy to increase its leverage in settlement discussions or licence negotiations with the patent owner, and to make a well-pitched early settlement offer, protecting itself from the legal costs of the damages inquiry phase of the litigation.

What?

This case formed part of a complex set of proceedings between Adaptive Spectrum & Signal Alignment (“ASSIA”), a consultancy and software company, and British Telecommunications plc (“BT”). At an earlier High Court trial, Birss J had found that a broadband network management system belonging to British Telecommunications Plc (“BT”) infringed a patent owned by ASSIA. On appeal, the Court of Appeal found that a second patent was also infringed. A further hearing established that a variant designed by BT to work around the patents also infringed.

ASSIA elected to seek damages rather than an account of profits, and an inquiry as to damages was ordered. Although the proceedings for the inquiry had not yet started, BT applied for early disclosure of certain licences and other agreements from ASSIA in order that it could better understand what level of damages it may need to pay. BT argued that this was necessary to promote settlement discussions and to help it put together a reasonable Part 36 offer.

Conventionally, case management of intellectual property disputes separates the liability phase from the phase dealing with the assessment of the amount of damages. This means that disclosure which relates to quantum is normally not considered before the end of the liability phase, and normally takes place after the liability phase has started.

However, the Court accepted that it had jurisdiction to order disclosure at an earlier stage than would ordinarily be done, and would do so if it appears to be just and in accordance with the overriding objective to do so. This may be the case where it would promote settlement, allow the parties to be on an equal footing and allow them to gauge what the value of the case actually really may be.

ASSIA argued that the licences and other documents sought were highly confidential that making an order for early disclosure would cause ASSIA considerable cost and trouble.

The judge accepted this, but nevertheless decided that early disclosure of at least some of the documents sought by BT would be appropriate. The judge put particular weight on public statements made by ASSIA that its claim for damages would amount to “many millions of pounds”. This had caused difficulty to BT. Without access to the documents which BT had requested, it would not be able to understand if this statement was correct. Therefore, as ASSIA had “already entered the public domain” by making these statements, justice demanded that BT should be entitled to have at least a degree of early disclosure.

The judge concluded that it would be proportionate to order disclosure of the licences relating to the UK (where Sky was the licensee), but not the licences and other documents relating to ASSIA’s 27 other customers globally. These would have to be disclosed in due course, once the inquiry phase was under way.

So what?

A losing defendant in patent infringement proceedings in the English Courts is on the back foot in the damages inquiry. The victorious patent owner is, almost inevitably, going to recover something on the inquiry; the only question is how much. In the absence of an appropriate settlement offer by the losing defendant (which typically would be made in accordance with Part 36 of the English Civil Procedure Rules), the costs of the entire inquiry phase will be borne by the losing defendant. This means that a losing defendant will typically wish to protect its position by making an early Part 36 offer. However, it is often not in a position to do so until it has a reasonable idea of the value of the case.

Moreover, the Court accepted that, in appropriate situations, disclosure in relation to quantum may be ordered even pre-action (i.e. before the liability phase has started). This exact situation has cropped up in another recent case, The Big Bus Company Limited v Tickettogo Limited, [2015] EWHC 1094 (Pat).

In that case, an alleged infringer of a patent for a method of issuing tickets remotely applied for pre-action disclosure of the patent owner’s commercial contracts with existing licensees under the patent so that it could quantify the value of a likely future claim for patent infringement. Although no such claim had been explicitly threatened, it had been implied in a series of pre-action solicitor’s letters.

Arnold J ruled that the contracts should be disclosed, asking rhetorically: “Why should Big Bus have to fight and lose on infringement and validity in order to find out what it would have to pay by way of damages?”. The judge found that he had jurisdiction under CPR rule 31.16(3) to order pre-action disclosure satisfied in relation to licences under the patent granted to licensees in the transport sector in relation to licences under the patent granted to any licensees in the transport sector, and was satisfied that he should exercise his discretion to make an order.

In summary, rights holders considering bringing a claim for IP infringement should be aware of the risk of having to disclose commercially sensitive documents related to quantum at a relatively early stage. They should also be wary of making public statements regarding damages even after obtaining a favourable judgment on liability. Conversely, alleged infringers have a new strategy in appropriate cases for increasing their leverage in settlement negotiations or licensing discussions.