On July 3, 2013, the United Kingdom Supreme Court gave its judgment in Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd (f.k.a. Contour Aerospace Ltd) [2013] UKSC 46. It overturns over a century of case law, and confirms the principle that there can be no damages recovery in respect of a right which is subsequently declared invalid.

In the United Kingdom, the courts have, since 1908, upheld the principle that where a defendant has been found to infringe a patent, that defendant is liable for damages even where the patent is subsequently revoked. This could be either in separate proceedings where the patent is asserted against a third party, or, in more recent times, where it is revoked by the European Patent Office in opposition proceedings after final judgment in the UK. This was on the basis that the infringement was res judicata as between the parties, even where a later decision meant that the patent itself was invalid ab initio. The Supreme Court decision changes this.

The Facts

Virgin Atlantic Airways Ltd (“Virgin”) sued Zodiac Seats UK Ltd (“Zodiac”) for infringement of its European patent, EP 1 495 908, for a reclining flat bed airline seat (“the Patent”). At the same time as defending the action in the United Kingdom on the grounds that it did not infringe and that the Patent was invalid, Zodiac filed an opposition at the European Patent Office (EPO) to challenge the validity of the Patent in that forum.

At first instance, the UK court held the Patent to be valid and not infringed. Virgin appealed the finding of infringement; Zodiac appealed the finding of validity. On appeal, this position was reversed. The Patent was found to be valid and infringed.

While all this was going on in the United Kingdom, the opposition proceedings at the EPO were also proceeding, albeit (as is usual) on a much slower timetable. Between the first instance and appeal hearings in the UK, the Opposition division at the EPO upheld the Patent as valid. Subsequent to the UK Court of Appeal decision, the Technical Board of Appeal at the EPO found all the claims that the UK Court of Appeal had held to be infringed were, in fact, invalid.

The net result in the UK, therefore, was a finding of infringement but of a patent that had been deemed invalid ab initio.

The Issue before the Supreme Court

In line with English case law, which started with Poulton v Adjustable Cover and Boiler Block Co. [1908] 2 Ch 430, the UK Court of Appeal ordered a damages enquiry, under which Zodiac would have been liable to Virgin for damages even though the relevant claims of the Patent were subsequently found to be invalid. English case law has established that where infringement of a valid patent is found, even if the patent is subsequently revoked in separate proceedings, the issue of infringement is res judicata as between the parties and so the defendant is liable for damages to the claimant.

This principle has been followed in recent times in Coflexip SA v Stolt Offshore MS Ltd (No.2) [2004] FSR 708 and, notably, in Unilin Beheer BV v Berry Floor NV [2007] FSR 635. In Unilin, Lord Justice Jacob based his reasoning on the fact that the EPO was too slow to come to its decisions, and what business wanted was commercial certainty, thus meaning that Unilin should be entitled to damages despite the EPO’s later revocation.

Zodiac appealed to the Supreme Court on the grounds that the principle of res judicata should not apply.

The Supreme Court’s Judgment

The Supreme Court approached the issue not by looking at the principle of res judicata, but by assessing the effect of a patent declared to be invalid. The effect was as if the patent had never existed. This means it could not be infringed, so Zodiac was entitled to say that Virgin had suffered no loss when looking at the calculation of damages.

The Effect

The decision changes the position. The Supreme Court challenged the rationale of the Court of Appeal’s “commercial certainty” principle as expressed in Unilin, by commenting that in any given situation only half of the parties to an action wanted commercial certainty. More fundamentally, the Supreme Court was uneasy at the way in which the UK approach did not take into account the result of a permissible later action. As Lord Sumption, giving the leading judgment said,

it can hardly be said that the vexation inherent in there being two perfectly proper proceedings concurrently can be made more tolerable by ignoring the outcome of one of them”.

This was previously the case, where a later revocation of a patent was ignored when assessing quantum. Revocation (whether in later proceedings or, in modern times, by the EPO) subsequent to a final decision of the court now means that a defendant will not have to pay damages. Lord Neuberger, who gave a concurring judgment, went further and stated that in cases where payment under a damages enquiry had been made, subsequent revocation of a patent could give rise to a payment in restitution.

The Consequences

Apart from the impact on damages, which is the direct consequence of the Supreme Court’s decision, there are other potential impacts on patent litigation in the United Kingdom.

The English court has long complained of the slowness of the EPO. Almost alone amongst European countries, the United Kingdom has refused to stay infringement proceedings pending resolution of opposition proceedings at the EPO. This judgment may change that, as there could be a reluctance to allow litigation to proceed when all could be undone by a decision to revoke by the EPO. Alternatively, and more likely, the UK court may allow the proceedings to continue but stay a damages enquiry pending the final decision of the EPO, or possibly stay the validity part of the action but allow the infringement case to proceed, although this latter course is unlikely given the unity of infringement and validity proceedings in the UK courts, in contrast to the principle of bifurcation in, for example, Germany.

In particular, it will be important to see how this plays out in the new Unified Patents Court, with the tension between the UK approach not to stay pending a decision of the EPO and the more general approach in the rest of Europe to do so. This judgment of the Supreme Court shifts the position of the UK, meaning that a stay of infringement proceedings in the Unified Patents Court pending an EPO decision may well be more likely.