It has for a number of years been the law in England & Wales that, once a final decision of infringement and validity of a patent has been made by the courts, then notwithstanding a later decision of the European Patent Office revoking the patent, damages for past infringements can still be sought. However, the Supreme Court has handed down its decision in Virgin Atlantic Airways Limited v Zodiac Seats UK Limited [2013] UKSC 46 reversing this practice, stating that it was positively unjust and not in the public interest for a former patentee to be able to recover damages for infringement of a patent that has been irrevocably revoked with retrospective effect.

Business impact

  • Following a final decision of infringement and validity of a patent, one of the usual remedies is an enquiry as to damages, i.e. further proceedings where the court assesses the patentee's losses and awards a sum of damages in compensation. However, what happens when that same patent is subsequently revoked by the European Patent Office under its parallel jurisdiction to consider issues of validity of a European patent? Previously, due to the principle of res judicata in England & Wales, a defendant was not at liberty to argue at such an enquiry that damages should not be awarded because the patent had subsequently been revoked.
  • The Supreme Court has now clarified this position, stating that, whilst the principle of res judicata does not allow a defendant to argue the merits of invalidity as a defence to a damages enquiry (as these have already been finally adjudicated on by the national court), that principle does not fetter the defendant's ability to raise as a defence the fact that the patent has been revoked. The effect of deploying such a defence in an enquiry could mean that damages are assessed as zero or nominal, as the patentee has suffered no loss as a result of the infringement. 
  • In light of the potential for the national court and the European Patent Office to reach opposite decisions on the validity of a European patent, the Supreme Court has also called upon the Patents Court or the Court of Appeal to re-examine the guidelines given by the Court of Appeal in Glaxo Group Ltd v Genentech Inc. [2008] FSR 18 in relation to whether the English court should stay its own proceedings pending the outcome of proceedings at the European Patent Office. In brief, these guidelines suggest that the national Patents Court should normally refuse an application for a stay where it was likely that it would determine the issue of validity more quickly than the European Patent Office.

Background

Virgin Atlantic Airways Ltd ("Virgin") sought to recover damages in excess of £49 million from Zodiac Seats UK Ltd ("Zodiac") for infringement of a European patent for an airplane seat that reclines to form a flat bed. The Court of Appeal gave judgment on 22 October 2009 finding the patent valid and infringed, having rejected a novelty attack on the validity of the patent from Zodiac. On 12 January 2010, Virgin was awarded a final injunction and an order was made for an enquiry as to damages.

The European Patent Convention provides for a centralised opposition procedure allowing European patents to be challenged during the period of nine months following grant. If a patent is revoked or amended centrally during such opposition proceedings, then the entire bundle of national patents is revoked/amended simultaneously. Conversely, if a national court revokes a patent, then none of the other patents in the bundle is affected, just the national designation of the European patent in issue. This leaves scope for inconsistent decisions on the validity of European patents.

Zodiac commenced opposition proceedings at the European Patent Office on 29 February 2008, which ran in parallel with the national proceedings. The opposition came to a conclusion on 9 September 2010 (after the Court of Appeal decision upholding the patent), when the Technical Board of Appeal overturned the decision of the Opposition Division, finding the relevant claims (those that were found to be infringed in the national proceedings) to be invalid and accepting Virgin's amendments to the patent which deleted those claims.

Article 68 of the European Patent Convention provides that the effect of revocation or amendment of a patent is retrospective – the patent is deemed to have never been granted or to have always been in its amended form. The question for the Supreme Court was whether Zodiac was entitled to argue at the forthcoming enquiry as to damages that Virgin had suffered no loss because there had been no infringement of the patent as amended, as a result of the retrospective effect of revocation or amendment. The answer would depend on the concept of res judicata and cause of action estoppel: "that once a cause of action has been held to exist or not to exist, that outcome may not be challenged by either party in subsequent proceedings." In this context, the cause of action was infringement of a valid patent. Cause of action estoppel serves to protect final judgments on the issues of infringement or validity so that the parties have certainty once a decision has been made. Once the Court of Appeal had decided that the European patent was valid (a key element of the patent infringement cause of action), and all avenues of appeal had been exhausted, Zodiac could not challenge this finding in later proceedings, such as the enquiry as to damages. Virgin argued that, at such an enquiry, Zodiac should be estopped from asserting that the patent in its unamended form was invalid or was not infringed.

The Supreme Court's decision

In its judgment, the Supreme Court reversed the decision of the Court of Appeal and held that Zodiac could deploy arguments relating to the fact that the patent had been subsequently amended, and hence Virgin had suffered no loss. As a result, the Supreme Court thought that Virgin might only recover zero (or nominal) damages. The Supreme Court found that there was no cause of action estoppel because Zodiac was not re-opening the question of validity of the patent (as decided by the Court of Appeal), but instead was relying on the "mere fact of amendment, not on the reasons why it happened."

In reaching its decision, the Supreme Court overturned a line of Court of Appeal authorities including Unilin Beheer v Berry Floor (2007), Coflexip v Stolt Offshore MS (No 2) (2004) and Poulton v Adjustable Cover and Boiler Block (1908). In the Virgin case, the Court of Appeal had considered itself bound by these decisions. In the Supreme Court, while considering Coflexip, Lord Sumption accepted that cause of action estoppel is an absolute rule, but only in relation to points actually decided on the earlier occasion. In that case, the "consequences of the patent’s revocation had not been decided on the earlier occasion, and could not have been because it had not happened." The majority of the Court of Appeal in that decision had been wrong to suppose that the court would be rehearing the question of validity during the enquiry as opposed to considering the effect of the revocation of the patent. Revocation is an act in rem (as opposed to in personam), which affects a patent's status as against the World.

Lord Neuberger used a counterfactual argument to illustrate the same point. If, after Zodiac had been found to infringe the patent, party X had made a product that was identical to Zodiac's, and a court had decided that X's product did not infringe Virgin's patent, then this would not assist Zodiac. The reason is that the question of infringement is specific to the parties concerned (in personam). On the present facts, Zodiac was raising the new fact of revocation (irrespective of the ground for that revocation) and not re-opening the issue of validity.

Policy arguments

Lord Sumption acknowledged the "vexation" caused by the pursuit of parallel proceedings on the validity of the patent, which in theory could be a policy reason for refusing the appeal, but held that this was "an inescapable feature of the statutory scheme", which had been envisaged by those who drafted the legislation. Simply ignoring the outcome of one of the two sets of proceedings would not make the vexation more tolerable.

In Unilin, Jacob LJ had justified the finding of an estoppel on the basis that (1) this would encourage legal certainty in that the parties have a definitive result sooner rather than later; and (2) that any final injunction would be discharged if the EPO later revoked or amended the patent, which would limit the harm done if the decisions of the English courts and the EPO were in conflict. Lord Sumption rejected the first point on the basis that the actual outcome would not be certain, instead it would depend on chance, i.e. a horse race between the parallel proceedings. In the present case, the fact that an eruption of an Icelandic volcano had deferred the decision of the Technical Board of Appeal until it was (potentially) too late to affect the outcome in the English proceedings underlined the role that chance could play. Lord Sumption also found that the distinction between past and future infringements (i.e. between a prospective injunction and a retrospective enquiry into damages) "makes no sense" where the revocation/amendment is deemed to be effective from grant.

Lord Neuberger, agreeing with Lord Sumption and making his own observations put the points succinctly, stating that it was positively unjust as between the parties for a former patentee to recover damages for infringement of a patent after the patent had been irrevocably and retrospectively revoked – there was no public interest in such an outcome.

The Glaxo v Genentech guidelines

In his decision, Lord Sumption considered the following counterfactual situation: if the Supreme Court had concluded that Zodiac was estopped from relying on the Technical Board of Appeal's revocation/amendment of the patent on the basis of the Court of Appeal's judgment on validity, then it would have been essential to have stayed the national proceedings at an earlier stage pending the final decision of the Technical Board of Appeal.

In Glaxo Group Ltd v Genentech Inc. (2008), the Court of Appeal had issued guidelines, which in essence provided that the Patents Court should normally refuse to grant a stay of its proceedings if it is likely to resolve the question of validity significantly earlier than the EPO. Those guidelines have been followed in a number of cases since Glaxo, the majority of which have led to the Patents Court refusing applications for stays on the basis that a decision could be reached in England & Wales before the European Patent Office.  Lord Sumption raised questions regarding these guidelines, as they would have the effect of placing parties in the "impossible situation" which Virgin and Zodiac had found themselves in. In light of that, Lord Sumption suggested that the Patents Court or the Court of Appeal should re-examine these guidelines.

Are there time limits?

Lord Neuberger also considered a number of additional situations that went further than the factual position in the Virgin case (where a damages enquiry had not yet commenced, but had been ordered). Lord Neuberger thought that it would have been legitimate for Zodiac to raise the amendment of the European patent as an argument up until the point when the court assessing the damages had given judgment. Thereafter, the court would have had a discretion over whether to reopen the judgment if the revocation/amendment had been raised before the damages had been paid (and Lord Neuberger went further, stating that he would expect a court to do this). He also did not rule out the possibility of an infringer recovering damages that had already been paid to the patentee following a damages enquiry, by commencing a new claim for restitution. However, such an approach could lead to uncertainty for patentees who have recovered damages from an infringer but then face a demand for these damages to be repaid, potentially many years later, after a third party successfully attacks the validity of the patent at a later stage.

Conclusion

The Supreme Court's decision has reversed what was a longstanding aspect of English patent law. Of more general interest, however, are Lords Sumption and Neuberger's comments regarding the practice of the English Courts when considering whether to stay national proceedings pending the outcome of parallel opposition proceedings at the European Patent Office. No doubt that, in light of the Supreme Court's comments, a decision from the Patents Court on this issue will be forthcoming.