Introduction
Facts
Decision
Comment


Introduction

In a recent decision of Charlotte May KC sitting as a Deputy High Court Judge, Geofabrics Limited (Geofabrics) was awarded £13.4 million in damages for patent infringement by Fiberweb Geosynthetics Limited (Fiberweb).(1)

Damages inquiries proceeding to trial and judgment remain rare in the United Kingdom and this decision provides a practical summary of the relevant legal principles applicable to the determination of damages in patent infringement proceedings.

Miss May KC also recognised the inherent difficulty and complexity of damages inquiries with numerous counterfactual considerations being relevant to the assessment. In this case, the factors included:

  • Geofabrics's hypothetical production capacity;
  • savings from actual staff redundancies made by Geofabrics that it was claimed would not have occurred in the counterfactual; and
  • a prediction of the potential price depression in the counterfactual.

Facts

Geofabrics's patent relates to a geosynthetic trackbed liner, also sometimes known as an "anti-pumping geocomposite", which sits as a geotextile layer between the soil and the ballast underneath railway tracks. It is used to improve a well-known problem called "pumping erosion" caused by water, clay and silt reaching out of the subgrade by the weight of the train as it travels over the track. Over time, removal of clay and silt causes erosion to the trackbed and settling of the track, which requires remediation.

In 2010, Geofabrics launched its geocomposite product, Tracktex, as a more cost-effective and environmentally-friendly alternative to the pre-existing solution of using a layer of sand (known as a "sand blanket").

In July 2012, Fiberweb launched its rival product, Hydrotex 2, which was found by the High Court to infringe the patent.(2) This decision was upheld on appeal.(3) Fiberweb was on the market in the United Kingdom until June 2021. The Hydrotex 2 product was sold at a lower price than Geofabrics's Tracktex product.

At all material times Tracktex and Hydrotex 2 were the only commercially available alternatives to a sand blanket.

Network Rail approved the use of Tracktex in March 2020, and the use of Hydrotex 2 in July 2021. Geofabrics argued that this caused pressure on Tracktex's pricing.

The damages inquiry followed the first instance and Court of Appeal decisions which determined that Fiberweb was liable for infringing Geofabrics' patent.

Decision

Geofabrics elected for damages (as opposed to an account of profits) and its claim for damages comprised four heads of damage:

  • lost profits on lost sales of Tracktex;
  • lost profits on historic sales of Tracktex as a result of price competition from Hydrotex 2;
  • lost profits on future sales of Tracktex as a result of ongoing price depression caused by historic price competition by Hydrotex 2; and
  • interest.

Miss May KC assessed the damages on the basis that the counterfactual would have been that Hydrotex 2 did not exist, such that all sales in the relevant market would have been sales of Tracktex by Geofabrics.

Miss May KC considered that the counterfactual included the following key matters for determination:

  • causation and remoteness of damage – the judge concluded that in order to succeed, a claimant must demonstrate that the defendant's infringing act caused the loss suffered;
  • loss of a chance – in circumstances where damages are to be assessed as a result of hypothetical scenarios or assumptions, damages ought to be awarded in a way that is proportionate to the relative chances of the event occurring; and
  • the appropriate amount of interest – interest is compensatory rather than punitive and should be limited to the amount necessary to compensate the claimant for being kept out of monies due to it by way of damages.

There were seven issues considered in the assessment of damages.

What structure should be assumed for Geofabrics's trading arrangements in the counterfactual?
Geofabrics initially chose to sell Tracktex exclusively via a distributor, Aqua Fabrications Ltd (Aqua), and during the relevant period, the agreements between the parties changed based on the actions and pre-empted actions of Fiberweb.

Miss May KC dealt with this issue by asking whether Geofabrics would have entered into an exclusive distribution agreement with Aqua in the counterfactual, either:

  • because Geofabrics would have offered it; or
  • because Aqua would have demanded it.

The parties agreed that Miss May KC was to assess the issue on the balance of probabilities because it was dependent upon what the claimant would have done, and as a percentage chance because it was dependent upon the hypothetical actions of a third party.

Based on the evidence provided in the present case, the judge found there was not enough to prove that Aqua would have demanded an exclusive distribution agreement, and it did not appear that such an agreement would have been in the commercial interests of Geofabrics.

What prices would Geofabrics have been able to achieve for Tracktex in the counterfactual world?
The outcome of the second issue was relevant to three heads of loss:

  • lost profits on lost sales of Tracktex;
  • lost profits on sales of Tracktex in the actual; and
  • lost profits on future sales, which required an estimation of what the sales price of Tracktex would have been in the counterfactual in May 2021 when Hydrotex 4 launched.

Both parties accepted that it was not possible to determine what the prices would have been in the counterfactual with any kind of precision so Miss May KC stressed she would do the best she could to determine the relevant price based on the materials available to her.

Number of sales of Tracktex in the counterfactual
The time period the Court was concerned with was the period when Hydrotex 2 was on the market (ie, between 2012-2021). In the counterfactual scenario, Geofabrics would have been in a monopoly position for that period.

Geofabrics argued that every sale of Hydrotex 2 in the actual would have been a sale of Tracktex in the counterfactual (ie, a one-for-one assessment). However, Fiberweb argued that a proportion of Hydrotex 2 sales were sales that Geofabrics could never have achieved based on limitations in respect of Geofabrics's production capacity.

Geofabrics submitted that it had ample production capacity to manufacture the additional sales of Tracktex that would have been made in the counterfactual. Geofabrics provided evidence of the utilisation figures of each relevant production line in the manufacturing process in the actual, and also forecasted figures for the counterfactual.

Miss May KC was satisfied that the figures provided discharged the burden of proof by Geofabrics on this issue and the judge found that Geofabrics would have had capacity to manufacture the additional Tracktex product it would have sold in the counterfactual.

What allowance, if any, should be made for redundancies?
Geofabrics had to make eight redundancies in 2013. The reduced head count was equivalent to 28% of the workforce.

Miss May KC had to decide on the balance of probabilities which redundancies would and would not have been made in the counterfactual because of the downturn of Geofabrics's business caused by the infringement and resulting lost sales of Tracktex.

Miss May KC acknowledged that there were a number of reasons why the redundancies of certain staff members were made, including other financial pressures that would have occurred in any event, regardless of the infringement by Fiberweb. However, it was agreed that some of the production staff would not have been made redundant in the counterfactual. Therefore, Miss May KC decided that Geofabrics's damages were to be reduced by a total of £189,008 to reflect the savings it made from the redundancies.

Lost profits on future sales
Geofabrics argued that if Hydrotex 2 had never been on the market, then when Fiberweb's later product (Hydrotex 4) came on the market, Tracktex would have been selling at a higher price in the counterfactual than it was in the actual at that time. Geofabrics claimed that the historic presence of Hydrotex on the market negatively impacted the future sales of Tracktex, even after it was removed.

Geofabrics considered that the price of Tracktex would have fallen after two years in the counterfactual. Its reasoning for this was that when the future Fiberweb products were introduced to the market, they would have been required to build their reputation in the market. However, when later products were launched in the actual, it was off the back of established trading of Hydrotex 2, or in other words, Fiberweb's infringing conduct was akin to a "springboard" for its later product releases. Moreover, Geofabrics was of the view that Tracktex would have been on the market in a monopoly position for about 10 years with a well-established reputation and proven track record.

Miss May KC acknowledged the difficulty of deciding on this issue, particularly because the evidence in the case was not clear. However, with little to go on, Miss May KC relied on Geofabrics's expert report and agreed that a price depression over a two-year period was a realistic position to take.

Was any loss attributable to the Crossrail deal too remote?
The Crossrail project related to one particular commercial deal to which both Geofabrics and Aqua were parties. Geofabrics claimed the difference in price between the amount achieved in the actual and the amount it considered it would have achieved in the counterfactual.

Geofabrics argued that in the counterfactual Tracktex would have been sold for a higher amount in the Crossrail deal. The lower pricing was offered to Crossrail based on a belief that this was the pricing Fiberweb was offering, and Geofabrics was concerned with defending its market position and securing the project contract.

However, Miss May KC found that the loss caused by the lower pricing in the Crossrail deal was too remote and could not be recovered. Fiberweb was only liable to pay for any price depression caused by the infringement.

How much interest should be awarded?
Reminding the parties of the legal principles, Miss May KC found that the task of the Court was to compensate the claimant for being kept out of monies due to it by way of damages, rather than being punitive in nature.

Taking into account that Geofabrics was not a borrower nor an investor, and that as a small business based in Leeds the company may be required to pay more for borrowing than large commercial entities, Miss May KC considered a fair rate of 2% above the base rate was an appropriate figure to award for interest.

Comment

The parties' experts were required to carry out the calculations in accordance with Miss May KC's factual findings, which led them to the final damages award of £13.4 million.

In reaching her conclusions, Miss May KC was largely guided by Geofabrics's arguments in the case, and made it clear she was relying on the evidence produced by experts, although an assessment was not capable of precise estimation.

While damages inquiries are fact dependent, this decision nevertheless provides some general guidance for parties and practitioners. It also highlights the difficulty that damages inquiries present claimants based on various unknown and counterfactual considerations which need to be addressed in evidence. Expert witnesses are required to assess the counterfactual scenario as against the actual scenario or market and these assessments and the models which arise are based largely on assumptions and a "but for" assessment of what a claimant for damages may have done if not for the infringement (or injunction in the case of a claim under a cross undertaking).

In the Geofabrics case, the judge made findings of fact which she then asked the parties' experts to use to reach a calculation as to the relevant damages amount payable to Geofabrics. This was said to be as a result of the evidence in this case, but it remains to be seen whether this practice will be adopted by other judges going forward.

For further information on this topic please contact Charlotte Weekes, Anna Harley or Nicole Boulis at Pinsent Masons by telephone (+44 20 7418 8250) or email ([email protected], [email protected] or [email protected]). The Pinsent Masons website can be accessed at www.pinsentmasons.com.

Endnotes

(1) Geofabrics Limited v Fiberweb Geosynthetics Limited [2022] EWHC 2363 (Pat).

(2) Geofabrics Ltd v Fiberweb Geosynthetics Ltd [2020] EWHC 444 (Pat).

(3) Geofabrics Ltd v Fiberweb Geosynthetics Ltd [2021] EWCA Civ 854.