The Supreme Court today overturned a Court of Appeal ruling in the Virgin1 airline seats case in relation to damages, and overruled a line of cases culminating in decisions on damages in Coflexip and Unilin2. It found that the English rule of res judicata does not prevent a defendant in a patent infringement action relying on the revocation or amendment of the infringed claims in other proceedings after he has been found to infringe, to seek to avoid liability for damages on those infringements.
The Supreme Court gave two reasons for its decision:
- The defendant, Zodiac3, would be estopped from asserting that the original form of the patent was invalid or not infringed. However, by virtue of the European Patent Office’s (EPOs) decision amending the patent, the original form of the patent was deemed never to have existed; the amended patent must be treated as the only patent that had ever existed. The damages inquiry was therefore concerned only with the amended patent, which had not previously been considered in the English proceedings.
- Zodiac was not seeking to reopen the issue of validity which had been determined by the Court of Appeal. It relied on the new fact of amendment by the EPO, not the reasons (namely invalidity) why the amendment happened.
The Supreme Court also suggested reconsideration of the procedural guidelines of the Court of Appeal and Patents Court dealing with the circumstances when a stay of English proceedings pending the outcome of EPO proceedings should be ordered.
Click here for link to decision.
Post-grant, the validity of a patent may be assessed more than once, either in separate proceedings against different "infringers", or (in the case of a European patent) in parallel UK invalidity proceedings and EPO opposition proceedings.
In the former case, the question arises as to the impact of a revocation decision on an earlier finding between different parties that a patent is valid and infringed. The English law on this issue was settled in the Coflexip case.
In the latter case the issue arises because there can be parallel proceedings to revoke the same European patent, both before national courts, and before the EPO. A finding by a national court that a European patent is valid does not preclude a subsequent determination by the EPO that the patent is invalid or must be amended. While national courts may in certain circumstances stay their proceedings pending the outcome of EPO opposition proceedings, they are not obliged to do so. The English law on this issue was determined in the Unilin case.
The Coflexip decision
Coflexip's patent was held valid and infringed and an enquiry as to damages was ordered. While the inquiry was in progress a third party, relying upon different prior art, succeeded in having the patent revoked in parallel UK proceedings.
The majority of the Court of Appeal5 held that the defendant was estopped from relying on the subsequent revocation in the inquiry. The main reason for this was that unless the defendant was estopped, the patentee would be harassed by two successive proceedings in which he would be required to defend the validity of the patent.
Lord Justice Neuberger (as he then was) dissented on the basis that the defendant was not seeking to rely on the prior art which had led to the revocation of the patent in the parallel proceedings, but rather on the fact of that revocation. Therefore, following developments in the doctrine of res judicata , “strict cause of action estoppel” (where the identical issue was decided in earlier proceedings) did not apply. Coflexip could rely on “abuse of process cause of action estoppel” (where the unsuccessful party wishes to reargue the point by reference to new material or a new argument not put before the court before) but this form of cause of action estoppel was not absolute and in his view the Court should not give effect to it in the circumstances.
Lord Neuberger's dissenting view in Coflexip has now been adopted by the Supreme Court.
The Unilin decision
Unilin's patent was held to be valid and infringed, and the Court made an unconditional order for an inquiry as to damages or an account of profits. The defendant, Berry, applied for a stay pending the outcome of parallel EPO opposition proceedings. The question arose whether Unilin's entitlement for financial relief and costs was res judicata, notwithstanding the possibility that the EPO might subsequently revoke the patent.
The Court decided that, while subsequent revocation of the patent by the EPO would lead to the discharge of any injunction, the national rules of res judicata applied and neither an award for damages nor a perfected order for a damages enquiry could be set aside. The cause of action for patent infringement merged with the judgment finding the patent to be valid and infringed; the patentee would be entitled to enforce its judgment for damages regardless of the subsequent revocation of the patent.
In reaching its decision, the Court considered earlier cases including Coflexip, and Mr Justice Jacob articulated the policy reasons for these decisions:
- The estopped defendant has had a full and fair opportunity of attacking the validity of the patent in his own proceedings.
- There is a very strong public interest in the finality of litigation.
- A party who had lost would have a strong motive for getting a third party to attack the patent, thereby undermining the first decision. It is better that he knows he will have no second chance.
Ultimately the Court in Unilin saw nothing in the wording of the European Patent Convention or the Patents Act 1977 which meant that the English rules on estoppel (as applied in Coflexip ) should be displaced by a decision in EPO opposition proceedings. The Court also upheld the first instance judge's decision not to grant a discretionary stay of the hearing on financial relief, finding that Unilin should be allowed to get on with enforcing the judgment in their favour.
The Virgin case
In the Virgin case, as in Unilin, the English Court found the patent to be valid and infringed. However, an appeal was pending in parallel EPO opposition proceedings. The defendant argued that the final order on liability should be stayed to avoid them having to pay damages in the event that the EPO revoked or amended the patent. This would avoid the need for an order for an inquiry, having the effect of an immediate judgment for damages with all of the consequences set forth in Unilin.
The Court of Appeal had no hesitation in refusing a stay following the decision in Unilin. Among the arguments raised by Zodiac was that the effect of amendment of a patent by the EPO might be different to the effect of revocation, meaning that Unilin would not apply. The Court disagreed on the basis that it was difficult to see why a patentee who amends should be in a worse position in relation to the enforcement of a judgment than a patentee whose patent is revoked6.
Zodiac sought leave to appeal the point to the Supreme Court. Leave was refused by the Court of Appeal, but granted by the Supreme Court, leading to today's decision overruling Coflexip and Unilin.
It should be noted that the Virgin appeal does not extend to recovery of costs. Therefore, any costs order will be final, even if the patent is subsequently amended or revoked by the EPO.
- Lord Sumption's judgment states that the major fallacy of the previous line of cases was the assumption that cause of action estoppel was absolute generally, rather than absolute only as regards points actually determined by the earlier decision. Since the consequences of the parallel revocation of a patent could not have been decided in these cases prior to the damages inquiry (since it had not happened), there was no true cause of action estoppel. The inquiry would not be asked to rehear the question of the validity of the patent – rather deal with the consequences of its revocation ab initio.
- It is important to note that this decision applies to the subsequent revocation of a patent both by the EPO and in England. It therefore applies not only in cases with equivalent facts to the Virgin case (parallel UK and EPO proceedings between the same parties), but also where two parties separately attempt to revoke a patent and only the later action is successful (as in the Coflexip case).
- The Supreme Court heard argument on the comparable position in other European jurisdictions but did not rely on comparative law in its decision. Whilst it appears that there is no consensus across Europe, this decision brings UK procedure closer to that in Germany, where restitution is available, and into line with the position in France (where damages which have already been paid are not recoverable7, but revocation of the patent prior to payment will extinguish the right on which the patentee bases his claim for damages).
- It should be noted that this decision does not impact on the general rule that, whilst a successful claimant is entitled to pursue an inquiry for damages even if there is a possibility of an appeal, He usually does so at his own risk as to costs if the decision on liability is reversed on appeal. The situation in Virgin only bites once the appeals process has been exhausted, i.e. there is a final decision on liability.
- In addition, this decision does not change the position where a damages enquiry has been concluded before the patent is revoked. In this case, the final judgment for damages will only fall to be challenged on appeal, if an appeal is still open. Once the damages have been paid, the infringer would need to bring a claim in restitution to seek recovery of the amounts paid. This is one of the reasons why the Supreme Court has asked the lower courts to review the procedural guidelines which currently suggest that English Courts should normally refuse a stay if the English Court would be likely to resolve the question of validity significantly before the EPO.