06 May 2015

What to do about the new Practice Direction - Pre-Action Conduct





CPR 63.20 (2) requires those bringing claims in the Intellectual Property Enterprise Court ("IPEC") including the small claims track to state whether they have complied with paragraph 7.1(1) and Annex A (paragraph 2) of the Practice Direction (Pre-Action Conduct). If they don't the defendant has an extra 28 days in which to file his or her defence under CPR 63.22 (3). But if you actually turn to the Practice Direction - Pre-Action Conduct you will find that the old paragraph 7 and Annex A aren't there any more.

That is because the practice direction was updated on 29 April 2015. In their place, paragraph 6 provides:
"Steps before issuing a claim at court
6. Where there is a relevant pre-action protocol, the parties should comply with that protocol before commencing proceedings. Where there is no relevant pre-action protocol, the parties should exchange correspondence and information to comply with the objectives in paragraph 3, bearing in mind that compliance should be proportionate. The steps will usually include—
(a) the claimant writing to the defendant with concise details of the claim. The letter should include the basis on which the claim is made, a summary of the facts, what the claimant wants from the defendant, and if money, how the amount is calculated;
(b) the defendant responding within a reasonable time - 14 days in a straight forward case and no more than 3 months in a very complex one. The reply should include confirmation as to whether the claim is accepted and, if it is not accepted, the reasons why, together with an explanation as to which facts and parts of the claim are disputed and whether the defendant is making a counterclaim as well as providing details of any counterclaim; and
(c) the parties disclosing key documents relevant to the issues in dispute."
For intellectual property cases the removal of the old paragraph 7 and Annex A is a bit of a shame because it made litigators and their clients think about such things as whether they had title to the intellectual property right and what, if anything, had the other side actually done and whether it amounted to an infringement. I am sure a lot of dubious claims were nipped in the bud at that point.

While paragraph 6 (a) continues to summarize the requirements of the old para 7 it does not actually spell them out. I would therefore invite practitioners to look at an older set of rules which never had the force of law or even judicial backing but continue to provide templates for letters of claim and letters of response. I am referring, of course, to the Code of Practice for Pre-action Conduct in Intellectual Property Disputes which was drafted by Michael Skrein of Reed Smith and a panel of experts that included the late Sir Hugh Laddie and representatives of the bar, solicitors, patent and trade mark attorneys and in-house legal advisers to users of intellectual property rights over a decade ago.   This Code used to be on the CIPA website but the only place you find it nowadays is on Reed Smith's website.

I think the Code needs to be updated to take account of changes in the law but it is generally still a useful document. I trained a lot of my instructing solicitors and patent and trade mark agent litigators to refer to it and enclose it together with the old Practice Direction with their letters before claim when writing to unrepresented defendants.  Paragraph 3 sets out a checklist for letters before claim in all IP cases and Appendices A to F provide additional requirements for particular types of cases. Similarly, paragraph 4 gave a checklist for letters in response with additional content in the Appendices for different types of cases.

I would urge all IP practitioners - and even more non-IP specialist litigators with the odd IP case - to refer to this Code before firing off correspondence. The other day, Mr Justice Walker drew attention to the need for a sense of proportion in pre-action correspondence in Kazakhstan Kagazy Plc and Others v Zhunus (Rev 1) [2015] EWHC 996 (Comm) (16 April 2015). In particular, he said at paragraph [2] of his judgment:
"This case is an example of something which the court is seeing with increasing frequency. Claims are made for large sums. Emergency orders are obtained, without notice to the other side, which freeze assets worldwide up to the value of the sums claimed. From then on there is a series of interlocutory applications. They are heavier than they should be. Not weeks, but months, are spent assembling material to be put in evidence. Correspondence is exhibited. In some cases it includes something which correspondence should never include, namely the trading of insults between the solicitors for the parties. There has been little, if any, attempt to agree facts or issues. Time estimates for pre-reading are given which underestimate the time needed to read the key evidence and gain a grasp of what the real issues may be. The time needed is far more than it ought to be, largely because no expense has been spared in taking every point. There is an urgent need for commercial practitioners to bring a sense of proportion to this type of litigation."
This applies just as much to IP litigation as to any other and Michael Skrein's Code will help induce a sense of proportion.

If anyone wants to discuss this article or pre-action correspondence in general please call me on 020 7404 5252 during office hours or fill in my contact form.

05 May 2015

Wrapped up: Everseal Stationery Products Ltd v Document Management Solutions Ltd




















Not all patented inventions are high tech. The title of the patent in Everseal Stationery Products Ltd v Document Management Solutions Ltd. and Others  [2015] EWHC 842 (IPEC) (1 April 2015) was "Mailer with self-adhesive closure". The principal claim was for
"1. A business form with an adhesive closure having one or more adhesive regions for holding the form on a folded condition, characterised by the use on the adhesive region of a non-tacky layer of a dry self-sealing contact adhesive, which in the folded condition self-seals irreversibly to an opposed adhesive region also carrying a said contact adhesive, the adhesive being selected to self-seal irreversibly under a pressure of 500 kPa or less."
The defendant, Document Management Solutions Ltd. ("DMS") was accused by Everseal Stationery Products Ltd ("ESP") of supplying mailers to a company called Mastermailer Stationery Limited ("Mastermailer") which had failed to obtain a declaration of non-infringement in relation to the patent in Mastermailer Stationery Ltd v Everseal Stationery Products Ltd and another [2013] EWPCC 6 (16 Jan 2013).

ESP sued DMS for infringement of its parent not only in respect of the mailer it had supplied to Mastermailer but also in relation to two others that it had developed subsequently. DMS counterclaimed for revocation of the patent. The action and counterclaim came on before His Honour Judge Hacon on 24 and 25 Feb 2015. The questions before him were:
"(1) Whether any of Mailers 1, 2 or 3 fall within claims 1 and/or 7 of the Patent.
(2) Whether the Patent was invalid on the grounds of
(a) lack of novelty;
(b) lack of inventive step; and/or
(c) added matter.
(3) If any of the Mailers infringed, whether there should be a restriction on Everseal's recovery of damages pursuant to section 62(3) of the Patents Act 1977 ("the Act") because amendment of the Patent had been allowed and
(a) the specification of the Patent as published had not be framed with good faith and reasonable skill and knowledge; and
(b) the proceedings against DMSL had not been brought in good faith."
I have already mentioned claim 1. Claim 7 was for:
"A business form according to claim 6 in which the adhesive is a natural rubber latex adhesive stabilised with ammonia."
To understand claim 7 you need to know that claim 6 was for
"A business form according to any one of the preceding claims made from a paper sheet which is laser-printable in which said contact adhesive is an elastomer latex adhesive."
The judge concluded at paragraph [63] that if the patent were valid, the mailer that DMS had supplied to Mastermailer would have infringed claim 1 but not claim 7 and the mailers that DMS developed afterwards would not have infringed either claim. However, he also held that those claims were invalid for lack of novelty and obviousness.

Infringement
The parties agreed that the judge should construe the claims in accordance with Lord Hoffmann's speech in Kirin-Amgen Inc and others v Hoechst Marion Roussel Ltd and Others [2005] RPC 9, [2004] UKHL 46, [2005] 1 All ER 667, (2005) 28(7) IPD 28049, [2005] RPC 169 as amplified by Lord Justice Jacob's judgment in Virgin Atlantic Airways Ltd v Premium Aircraft Interiors UK Ltd [2009] EWCA Civ 1062, [2010] RPC 8. The only argument on construction was on the meaning of "irreversibly" in claim 1. His Honour decided at paragraph [42]:
"the adhesive self-seals 'irreversibly' if, upon receipt of the mailer, the recipient is able to tell from both (a) the adhesive structure (by direct inspection or by inference from inadequate sealing) and (b) the appearance of the base material, that the mailer has previously been opened. If earlier opening would not be betrayed by each of these taken separately, the adhesive did not self-seal 'irreversibly' when the mailer was first closed."
Claim 7  required the adhesive to be a natural rubber latex adhesive stabilized with ammonia.

The judge found no evidence that natural rubber latex adhesive stabilized with ammonia was used for the first mailer. He therefore held at paragraph [47] that claim 7 had not been infringed by that mailer. DMS had carried out experiments on the second and third mailers to see whether they could be resealed to disguise signs of tampering and there was no evidence that they could not. As the burden of proof was upon ESP the judge held at paragraph [56] that ESP had not discharged that burden. Accordingly the claim for infringement failed in respect of the subsequently developed mailers.

ESP succeeded on claim 1 in respect of the first mailer because DMS admitted that that mailer fell within the integers of that claim subject only to an argument as to whether the adhesive seal was irreversible. That argument had failed in the action before Judge Birss and it was abandoned at trial.

Anticipation
DMS had argued that one British and two American patents had anticipated the patent in suit. The judge directed himself at paragraph [73]
"that if it is alleged that carrying out the teaching of certain prior art would lead to the performance of the claimed invention, it must inevitably do so if the claimed invention is to lack novelty". 
At paragraph [74] he said:
"Where lack of novelty turns on whether an alleged prior use had particular features, it is sufficient to adduce evidence which proves, on the balance of probabilities, facts which establish that the prior use had those features. By contrast where the court is invited to infer that the prior use had one or more features on the basis of primary facts proved, the claimed invention will lack novelty only if the inference is an inevitable one. No matter how likely an inference it is, if the primary facts allow for the possibility of an alternative inference the invention will not lack novelty."
On the evidence before him he concluded that there was sufficient evidence of prior use to show that claim 1 of the patent had been anticipated by the British invention but that the teaching of the US patents did not anticipate claims 1 or 7.

Obviousness
Earlier in his judgment Judge Hacon adopted Judge Birss QC's findings in Mastermailer on the skilled addressee (a team concerned with producing business forms, including someone who is an adhesive specialist) and common general knowledge. Having regard to the team and common general knowledge the judge concluded that both claims 1 and 7 were obvious in the light of the prior art.

Other Matters
Having reached decisions on validity and infringement His Honour did not consider it was necessary to consider the other issues and declined to do so.  If the case went to appeal the appellate judges would not require findings of fact from him to form a view because these were issues of law and construction. The whole point of the Intellectual Property Enterprise Court is to save time and costs and a discussion and adjudication on those points would have consumed both.

Comment
This case does not make any new law but it is a useful illustration of the application of well known principles and may well appear in skeleton arguments for that reason alone. Should anyone wish to discuss this case or patent law in general, he or she should call me on 020 7404 5252 during office hours or use my contact form.

24 April 2015

Damages for Infringement of Database Rights: Intercity Telecom Ltd v Solanki

Jane Lambert











The first claimant. Intercity Telecom Limited ("Intercity"), is one of the largest independent communications service providers in UK. The second, Modern Operations Limited ("Modern"). employs sales executives who work within Intercity's sales division. Between 2000 and 2014 Modern employed the defendant, Sanjay Solanki ("Mr Solanki"). He joined the company as a sales executive and  rose eventually to the post of National Account Manager where he had a portfolio of clients who brought Intercity some £3 million of business every year.

In the last few weeks of his employment Mr Solanki downloaded from his employer's computers a large number of records of its customers, including their telecommunications requirements and expenditure on telecommunications systems and services, on to memory sticks which he took away. He used that information to approach several of Intercity's customers and tried to win their business for its competitors. He approached some of those companies while still on his employer's payroll and others in the 12 months after he had left the company when he was subject to restrictive covenants not to compete with his former employer. He continued to do these things even though he had given undertakings to the court not to do so. He made false statements as to what he had done under oath.

Giving judgment in Intercity Telecom Ltd and another v Solanki [2015] EWHC B3 (Mercantile) (27 Feb 2015) said at paragraph [18]:
"In my judgment, there has been deliberate and calculated spoliation and manipulation of critical evidence in this case by the Defendant both before and during the time it has been before the court. The electronic evidence that has been recovered by the Claimant is of a damning nature to the Defendant's case, as the Defendant well knew and is wholly supportive of the Claimants case. His sworn statements in his Defence and affidavits have been demonstrated to be untrue. I draw adverse inferences against the Defendant in terms of his credibility and of his case and in instances where documents are missing. I find him to be untruthful, unreliable and evasive. The documents speak for themselves as a contemporaneous log of the Defendant's illegal activities."
The claimants sued Mr Solanki for damages for breach of contract and database rights, delivery up of confidential information and injunctive relief.  Interestingly and notwithstanding CPR 63.13 and paragraph 16.1 (8) and (11) which allocates claims for database right infringement and breach of confidence to the Chancery Division, Intellectual Property Enterprise Court ("IPEC") or the Birmingham hearing centre of the County Court they brought this action in the Birmingham Mercantile Court which is part of the Queen's Bench Division. Had this action been brought or transferred to IPEC Mr Solanki's costs would have been limited to those in CPR 45.31 (1) but he made no application for transfer. Indeed, he took no part in the case after the claimants' applications for interim injunctions against him.

The proceedings before Judge Simon Brown were the trial of the action which had been listed for 5 days.  Only the claimants turned up and they led oral and written evidence against Mr Solanki.  In accordance with Queen's Bench practice the judge determined liability and assessed damaged and costs at a single sitting.  Counsel for the claimants had listed the following issues for the judge's determination which His Honour adopted at paragraph [20]:
"a. Issue 1: Was Mr Solanki constructively dismissed so as to release him from his obligations under his contract of employment? Mr Solanki has claimed that Modern Operations breached the implied term of trust and confidence and that he accepted that breach by submitting his resignation.
b. Issue 2: Did Mr Solanki breach the terms of his contract of employment–clauses 9, 10 and/or 11?
c. Issue 3: Did Mr Solanki breach a duty of confidence to the Claimants?
d. Issue 4: Did Mr Solanki breach the Claimants' database rights?
e. Issue 5: What are the appropriate remedies?"
The learned judge found for the claimants on all the issues. Relying on the principle in Armory v Delamirie [1722] EWHC KB J94(1722) 1 Strange 5O5; 93 ER 664, KB where Chief Justice Pratt directed the jury
"that unless the defendant did produce the jewel, and shew it not to be of the finest water, they should presume the strongest against him, and make the value of the best jewels the measure of their damages"
His Honour assessed damages at £290,009. He reached that figure on the basis that Mr Solanki had enticed away 8 accounts and that the damages that he assessed represented the lost profits on their business. In awarding damages the judge did not consider separately the claims for breach of contract, breach of confidence or infringement of database rights. He simply considered the claimants' global loss and awarded damages under all three causes of action in respect of that loss. The judge also made declarations that the defendant had infringed the claimants' database rights, granted perpetual injunctions against further infringements and breaches of confidence as set out in his contract of employment and awarded costs on the indemnity basis which he assessed at £68,959.25.

Database right is a property right that subsists in a database under reg. 13 of The Copyright and Rights in Databases Regulations 1997 "if there has been a substantial investment in obtaining, verifying or presenting the contents of the database."  It is infringed by extracting or re-utilizing  all or a substantial part of the contents of the database without the owner's consent.  The Regulations implement in the UK Directive 96/9/EC of the European Parliament and of the Council of 11 March 1996 on the legal protection of databases ("the Database directive") OJ L 77, 27.3.1996, p. 20–28. I have found the regulations a very useful adjunct to the common law remedies for breach of contract and possibly breach of covenant in departing employees' cases, especially since the definition of a database in reg 6 is
"a collection of independent works, data or other materials which—
(a) are arranged in a systematic or methodical way, and
(b) are individually accessible by electronic or other means"
which is broad enough to cover a card index or directory. Over the years I have obtained several interim injunctions to restrain database right infringement in employment cases.

Problems of the kind that occurred in this case are not uncommon and should anyone have one it is imperative to move quickly. As this judgment shows it is still possible to obtain interim injunctive relief without coming to London though I would suggest issuing in the Chancery Division rather than the Mercantile Court in order to comply with CPR 63.13. Having said that it probably does not make much difference in the long run as in many district registries the same judge sits on both Chancery and Mercantile cases. Should anyone want to discuss this case he or she should contact me on 020 7404 5252 during office hours or use my contact form.

07 March 2015

Ah but what if you can't afford to litigate in this super court?





I always enjoy going to court in the Rolls Building. It is a great improvement on the Royal Courts of Justice in the Strand or even the new Civil Justice Centres in Liverpool and Manchester. But this court is expensive to run which is why HM Government is about to increase the cost of issuing a claim worth over £10,000 to 5% of the value of the claim. As I say in How to enforce your IP claim after court fees sky rocket 7 March 2014 NIPC Inventors' Club, some litigants will be faced with a whopping 622% fee increase.

That falls well within the jurisdiction  of the Intellectual Property Enterprise Court which was set up to make it easier for British SME to enforce their intellectual property rights. However, £10,000 is a daunting expense for many such businesses and it is likely to be one more reason for their not protecting their intellectual assets.

However, there are things that an SME can do and I have set those out in my article:

  1. Limit your damages to £10,000. You can still get your injunction and if you can come before the small claims track of the Intellectual Property Enterprise Court the judge will consider your claim for damages or other pecuniary relief at the same time she determines liability. It is a much simpler, cheaper and less risky process and most of the IP cases that I did when I was in Manchester could now be brought in the small claims track.
  2. Consider making more use of the Intellectual Property Office tribunals who have quite extensive powers in inter partes disputes. They can even hear patent cases if every party agrees though they can't award injunctions.  That has not happened much in the past but maybe it will now.
  3. Consider an opinion from a patent examiner. It will only cost you £200. An authoritative opinion may be all you need to unlock a dispute.#
  4. Use an  established arbitration or other ADR scheme where one exists. The best known are the UDRP and Nominet DRS for generic top level and .uk country code top level domain name disputes.
  5. Insert a dispute resolution provision into your licences or other agreements if you don't want to go to court.
  6. Consider before-the-event insurance and let the insurer worry about the issue fees.
On the horizon and riding to the rescue like the US cavalry is the Unified Patent Court which will have exclusive jurisdiction for unitary patents and European patents (UK) unless the patentee opts out of the scheme during a transitional period. Art 71 of the Unified Patent Court agreement restores legal aid to individual inventors - something that was taken away by the access to justice Act 1999.

If you want to discuss this or my longer article give me a ring on 020 7404 5252 during office hours or message me through my contact form.

04 March 2015

An Escrow Case at Last - Filmflex Movies Ltd v Piksel Ltd




In my early years at the Bar I did a lot of work for John Morris who was in-house legal advisor to the NCC (National Computing Centre). The NCC had been established in 1966 as an autonomous not-for-profit organization, to
  • be the "voice of the computer user", 
  • encourage the use of computers in the UK and 
  • offer education and training in computers.
John spotted an opportunity for his company. He saw a need for source code escrow and persuaded his employers to offer one of the first escrow services in the UK.

Escrow is an arrangement by which a software house or software maintenance contractor deposits the latest version of a computer program in human readable form known as "the source code" to a trusted third party such as the NCC ("the escrow agent") with instructions to release the source code to the customer should the software house or maintenance contractor be unable or unwilling to maintain the program because of insolvency or some other cause. The NCC's escrow business grew quickly and eventually became the main revenue earner of the NCC. In 1999 the escrow service was hived off to a separate company known as the NCC Group which floated successfully on the alternative investment market and later on the main market of the Stock Exchange.

The escrow agreements that the NCC Group enters are not very different from the ones that I saw over 30 years ago. There is a trilateral agreement between the software owner, its customer and the NCC ("the single user agreement") and a bilateral agreement between the software owner and the NCC where there is more than one user of the software ("the multi user agreement").  There have been very few cases on escrow in any common law jurisdiction. One of the first in this country is Filmflex Movies Ltd v Piksel Ltd[2015] EWHC 426 which came before Mrs Justice Rose on 24 Feb 2015. In that case Filmflex Movies Ltd ("FilmFlex") sued Piksel Lts ("Piksel"for delivery up of the source code to the software that Piksel had developed for FilmFllex pursuant to a master services agreement.

Clause 9.7 of the of that agreement provided as follows:
"[Piksel] shall ensure that (i) the Source Code for all [Piksel] Materials, Company Platform Materials, and Third Party Software (other than off the shelf software), and (ii) the Source Control Database, is placed in escrow with NCC Escrow International Limited (…) (the "Escrow Agent") on the Company's request and at the Company's cost within 60 days of the Commencement Date. The Company,[Piksel] and the Escrow Agent shall enter into a three-party source code escrow agreement in the agreed form (incorporating such amendments as the Escrow Agent may reasonably request) (the "Escrow Agreement") in respect of the [Piksel] Materials, Company Platform Materials and Third Party Software (other than off the shelf software) and the Source Control Database. The service of a Termination Notice shall be a release event for that Source Code or Source Control Database under the relevant Escrow Agreement."
Pursuant to that clause the parties entered a single user agreement with the NCC.

Clause 9.10 of the master services agreement provided a number of circumstances in which FilmFlex could require the release of the source code. They included:
  • termination of that agreement by either party or a material or persistent breach by Piksel
  • termination by the NCC of the escrow agreement
  • Piksel's insolvency, 
  • a change of control of Piksel, or
  • the appointment by FilmFlex of another party to provide the services that Piksel had agreed to supply.
Clause 6 of the escrow agreement however provided for the release only upon Piksel's insolvency or its inability or unwillingness to fulfil its obligations.

On 17 Nov 2014 FilmFlex appointed ADITI Technologies Private Limited to carry on the work that had been done by Piksel and asked for copies of the source codes. Piksel refused to deliver them on the ground that the master services agreement had been superseded by the single user escrow agreement and there was nothing in the escrow agreement that required the NCC to release the source code upon the appointment of a new service provider.

The judge found that FilmFkex was entitled to require Piksel to deliver up the source code notwithstanding the absence of a provision in the single user escrow agreement that corresponded to the last provision of clause 9.10 of the master services agreement.  In her ladyship's judgment at paragraph [20]:
"there is an implied, if not an express, provision in the Escrow Agreement whereby NCC can be required to release the Source Code and Source Control Database to FilmFlex if the Owner and the Licensee jointly instruct them to do so in circumstances other than those set out in clause 6. FilmFlex and Piksel can agree between themselves as to additional circumstances where that should happen and that agreement can be found outside the terms of the Escrow Agreement itself. Further, I consider that the final sentence of clause 9.7 and clause 9.10 of the MSA amount to just such an agreement. They set out the circumstances in which Piksel is obliged to bring about the release of the Source Code and the Source Control Database from the Escrow Account. It is not disputed that the event specified in clause 9.10.5 has occurred. I consider that the proper construction of the MSA is that where an Escrow Account is set up by Piksel with NCC in compliance with clause 9.7, Piksel is bound to consent to the release of the Source Code and Source Control Database where FilmFlex appoints a third party to provide any services for the Platform, the [Piksel] Materials or the Company Platform Materials."
Piksel had argued that the parties' intention must have changed between their signing the master agreement and the escrow agreement. The judge did not accept that the mere fact that the escrow agreement came after the master services agreement was signed meant that the escrow agreement's terms ousted the terms of the master services agreement. In her view there was no real inconsistency between the two agreements because clause 9.10 of the master  and clause 6 of the escrow agreement dealt with different things. Clause 9.10 is dealing with the obligations of FilmFlex and Piksel between themselves to bring about the release of the package from escrow whereas clause 6 of the escrow agreement is dealing with the circumstances where FilmFlex can demand release of the Package directly from NCC. The substitution of the much more limited release events in clause 6 of the escrow agreement for the more extensive trigger events in clause 9.10 would have been a substantial surrender by FilmFlex. That was particularly so in respect of clause 9.10.5 which reflected the freedom conferred on FilmFlex under other terms of the master services agreement to appoint another contractor in addition to or instead of Piksel. There was no reason why FilmFlex would retain the right to make such an appointment under the first agreement but give up the entitlement to release of the source code from escrow under clause 9.10.

Her ladyship also relied on the speech of Lord Bingham in "Starsin", Owners of cargo and Others v. "Starsin", Owners and/or demise charterers of  [2003] UKHL 12, 2003 AMC 913, [2003] 1 Lloyd's Rep 571, [2004] 1 AC 715, [2003] 1 CLC 921, [2004] AC 715, [2003] 2 WLR 711, [2003] 1 All ER (Comm) 625, [2003] 2 All ER 785, [2003] 1 LLR 571 (13 March 2003) that any inconsistency between standard and specifically negotiated contract terms the latter should prevail.

In addition to its rights under clause 9.10, FilmFlex relied on clause 9.11 of the master services agreement which provided:
"In addition to the trigger events set out in Clause 9.10, [Piksel] acknowledges and agrees that [FilmFlex] will have access to the Source Code (and [Piksel] shall reasonably co-operate in the provision of such access) throughout the term of this Agreement upon [FilmFlex's] request."
Piksel argued that this right allowed access only to the source code in escrow and not to the source code of everything that had been developed by Piksel. The judge rejected that argument as untenable as it would require the NCC which was a stranger to the master services agreement to access its servers at any time.

She also rejected Piksel's second argument that access to the source code meant only having a look at the source code. She adopted the claimant's argument that access to the source code was analogous to access to a swimming pool in an hotel. Such access implied use of the pool and not just walking to its edge. It was implicit that FilmFkex must have a copy of the source code so that it could develop its software further. Piksel had argued that was tantamount to requiring it to surrender a valuable asset to a potential competitor. The judge replied that Piksel still owned the copyright and other intellectual property rights in the software that it had already developed which would enable it to prevent FilmFlex or ADITI from using the source code to develop a competing product. The source code would be used only for further development of FilmFkex's software. Moreover Piksel had been paid well for its work under the master services agreement.

Although Piksel continued to own the copyright and other intellectual property in the software that it had developed for FolmFlex it had licensed FilmFlex in very broad terms. Clause 9.1 of the master services agreement provided:
"For the purposes of this Agreement only and subject to clause 9.4, all Intellectual Property Rights in the [Piksel] Materials and the [Piksel] Platform belong to [Piksel]. i[Piksel] grants [FilmFlex] a perpetual, royalty free, non-exclusive, non-transferable, irrevocable licence to run, use, access, maintain, modify, enhance, copy and create derivative works of the [Piksel] Materials, i[Piksel] Platform and all associated documentation, as applicable, throughout the world (and permits its subcontractors to do the same for the sole purpose of providing services to the [FilmFkex])."
This was supplemented by clause 9.2 in relation to FilmFlex's intellectual property:
"All Intellectual Property Rights in [FilmFlex's] Materials, [FilmFkex's] Platform Materials and [FilmFkex's] Data belong to [FilmFkex] [FilmFkex] grants [Piksel] a non-exclusive, non-transferable, revocable licence during the term of this Agreement to use, copy, access, maintain, modify, enhance and create derivative works of [FilmFlex's] Materials, [FilmFlex's] Platform Materials and Company Data for the sole purpose of delivering the Platform to the Company and delivering the Services."
Her ladyship held that the licence that had been granted to FilmFlex also implied access to the source code for further development of the software. According to the unchallenged evidence of FilmFlex's expert, those activities can only sensibly be carried out if FilmFlex had a copy of the source code.

Mrs Justice Rose concluded at paragraph [38]:
"that on the true construction of the contractual arrangements and in the events which have happened, FilmFlex is entitled to delivery up of the Source Code by Piksel and also to require Piksel to procure the delivery up of the Source Code by NCC."
As there had been some dispute as to what was meant by "delivery up" her ladyship added at paragraph [39] that delivery up meant providing a copy of the source code in a format which means that the copy can be kept by FilmFlex, revised by them in a way which results in that copy diverging from any copy retained by Piksel and which FilmFlex can transfer to a third party without the further involvement in that transfer of Piksel. Whether this was effected by providing the source code on a memory stick or disc or by emailing a file did not matter.

As this is a rare case on escrow it is quite an important one not just for escrow agents such as NCC Group but for the whole software industry and their customers. In so far as it considers implied contract terms and the conflict between standard and specifically negotiated terms it is relevant to other types of agreements. Should anyone want to discuss this case, escrow or computer supply contracts in general, he or she should not hesitate to call me on 020 7404 5252 during normal office hours or use my contact form.

28 February 2015

Trade Marks and Passing Off: Supreme Petfoods Ltd v Henry Bell & Co (Grantham) Ltd

The Inn Sign for the Beehive public house in  Grantham
Photo Wikipedia


















The Lincolnshire town of Grantham educated one of the world's greatest scientists and the first woman ti be British prime minister (see "Frit" - Merck Sharp Dohme Corp v Teva Pharma BV 25 March 2012). It has a magnificent parish church and is home to Chantry Dance Company which is very special to me as you will see from the last video clip in Chantry Dance Company's Sandman and Dream Dance 10 May 2014 Teprischore if you read that far. It has a pub called The Beehive with a real beehive for the pub sign (how's that for imaginative branding). Each Autumn it holds a science and arts festival in honour of Sir Isaac Newton called Gravity Fields (see Gravity Fields Festival - there's much more to Grantham than Mrs T 8 Aug 2014 East Midlands IP).

So you might think that the good people of Grantham would be very interested in intellectual property having contributed so much to science, branding and the arts - wouldn't you. Well you'd be wrong.  When I put together a workshop on intellectual property law with speakers from the IP Office, Loven IP and our chambers as part of the Gravity Fields festival which I promoted relentlessly in East Midlands IP for over a month I had hardly any takers and had to pull it at the last minute to save my speakers wasted journeys.

Or would you be so wrong?  A Grantham firm has just helped to make some trade mark law.  In Supreme Petfoods Ltd v Henry Bell &; Co (Grantham) Ltd  [2015] EWHC 256 (Ch) (12 Feb 2015) Supreme Petfoods Ltd of Ipswich sued Henry Bell & Co. of Grantham for trade mark infringement under s. 10 (1), (2) and (3) of the Trade Marks Act 1994, art 9 (1) (a), (b) and (c) of Council Regulation (EC) No 207/2009 of 26 February 2009on the Community trade mark ("CTM Regulation") and passing off. The marks relied upon were:
  • UK registered trade mark no. 2345353 consisting of the word SUPREME registered as of 8 Oct 2003 in respect of (inter alia) "foodstuffs for animals; chews; meat and chocolate based animal treats; animal biscuits; animal litter; bird seed; animal bedding; … rabbit food" in Class 31 ("the UK Word Mark");
  • UK registered trade mark no. 2454708 consisting of the stylised word shown below registered as of 5 May 2007 in respect of (inter alia) "animal foodstuffs; supplements for animal foodstuffs; edible treats for animals; animal bedding and litter" in Class 31 
    ("the UK Stylised Word Mark");
  • UK registered trade mark no. 2454707 consisting of the ribbon device shown below registered as of 5 May 2007 in respect of (inter alia) "animal foodstuffs; supplements for animal foodstuffs; edible treats for animals; animal bedding and litter" in Class 31 
    ("the UK Ribbon Mark");
  • CTM  No. 5874921 consisting of the stylised word shown above registered as of 4 May 2007 in respect of (inter alia) "animal foodstuffs; supplements for animal foodstuffs; edible treats for animals; animal bedding and litter" in Class 31 ("the Community Stylised Word Mark");
  • CTM no 5875091 consisting of the ribbon device shown above registered as of 4 May 2007 in respect of (inter alia) "animal foodstuffs; supplements for animal foodstuffs; edible treats for animals; animal bedding and litter" in Class 31 ("the Community Ribbon Mark").
Supreme Petfoods complained of Henry Bell's use in the word "Supreme" its packaging as in the following example:

The case came on before Mr Justice Arnold who made clear his view of the case in the first sentence of his judgment: 
"In this case the Claimant ("Supreme Petfoods") seeks in essence to monopolise use of the word SUPREME as a trade mark for animal food."
From that moment onwards it became abundantly clear that the learned judge would throw out the claim. He concluded at paragraph [208] that:
"i) the UK Word Mark is invalidly registered save in relation to small animal food;
ii) the UK and Community Stylised Word Marks are invalidly registered save in relation to small animal food;
iii) the UK and Community Ribbon Marks are validly registered;
iv) Henry Bell has not infringed the UK Word Mark pursuant to Article 5(1)(a) of the Directive;
v) Henry Bell has not infringed the UK and Community Stylised Word Marks or UK and Community Ribbon Marks pursuant to Article 5(1)(b) of the Directive/Article 9(1)(b) of the Regulation;
vi) Henry Bell has not infringed the UK and Community Ribbon Marks pursuant to Article 5(2) of the Directive/Article 9(1)(c) of the Regulation."
vii) even if it would otherwise have infringed, Henry Bell would have a defence under Article 6(1)(b) of the Directive/Article 12(b) of the Regulation; and
viii) Henry Bell has not committed passing off."
Between paragraphs [12] and [25] the judge traced the development of Supreme's brand. From paragraph [26] to [42] he traced the development of Henry Bell's business and its marketing. At paragraph [43] he considered the use of the word SUPREME by other animal fee manufacturers.

His lordship then reviewed art 16 (1) of TRIPS, the 11th recital and arts 3, 5 and 6 of the European Parliament and Council Directive 2008/95/EC of 22 October 2008 to approximate the laws of the Member States relating to trade marks (codified version replacing Directive 89/104/EEC) ("the Directive"). The judge explained at paragraph [48] that he had referred to TRIPS because:
"The Court of Justice of the European Union has repeatedly held that, in a field of intellectual property law where the European Union has legislated, such as trade marks, national courts must interpret both European and domestic legislation as far as possible in the light of the wording and purpose of relevant international agreements to which the EU is a party, and in particular TRIPS."
He observed at paragraph [50] that:
"It is settled law that many issues in European trade mark fall to be assessed from the perspective of the "average consumer" of the relevant goods or services, who is deemed to be reasonably well-informed and reasonably observant and circumspect"
adding  as Mr Justice Birss had pointed out in Hearst Holdings Inc v AVELA Inc [2014] EWHC 439 (Ch), [2014] FSR 36 at [60], that:
"The word 'average' denotes that the person is typical. The term 'average' does not denote some form of numerical mean, mode or median."
He decided that the average consumer in this case would be pet owners, that is to say ordinary members of the public some of whom own rabbits and gerbils and others cats and dogs.

The judge considered art 3 (1) (b) of the Directive and Case C-265/09 OHIM v BORCO-Marken-Import Matthiesen GmbH & Co KG [2010] ECR I-8265 and art 3 (1) (c) of the Directive and Case C-51/10P Agencja Wydawnicza Technopol sp. z o.o. v OHIM [2011] ECR I-1541. He concluded that neither the UK Word Mark nor the UK or Community Stylised Trade Marks was inherently distinctive.  However, he thought that the UK and Community Ribbon Marks were inherently distinctive.  He then analysed evidence of Supreme's marketing and sales under the Stylized and Word Marks and concluded that Supreme may have acquired some distinctiveness in relation to food for small animals but not otherwise.   He therefore declared that the Word Mark and the UK and Community Stylised Marks were invalid save in relation to small animal feed.

In relation to the claims under s.10 (1) of the Act and art 9 (1) (a) of the CTM Regulation Mr Justice Arnold held at paragraph [83] that:
"The case law of the CJEU establishes that the proprietor of a trade mark can only succeed in a claim under Article 5(1)(a) of the Directive or Article 9(1)(a) of the Regulation if six conditions are satisfied: (i) there must be use of a sign by a third party within the relevant territory; (ii) the use must be in the course of trade; (iii) it must be without the consent of the proprietor of the trade mark; (iv) it must be of a sign which is identical to the trade mark; (v) it must be in relation to goods or services which are identical to those for which the trade mark is registered; and (vi) it must affect, or be liable to affect, one of the functions of the trade mark: see in particular Case C-206/01 Arsenal Football plc v Reed [2002] ECR I-10273 at [51], Case C-245/02 Anheuser-Busch Inc v Budejovicky Budvar np [2004] I-10989 at [59], Case C-48/05 Adam Opel AG v Autec AG [2007] ECR I-1017 at [18]-[22], Case C-17/06 Céline SARL v Céline SA [2007] ECR I-7041 at [16], Case C-62/08 UDV North America Inc v Brandtraders NV [2009] ECR I-1279 at [42] and Case C-487/07 L'Oréal SA v Bellure NV [2009] ECR I-5185 at [58]-[64]."
There was  no dispute that the first 4 conditions had been satisfied.  As for the 5th and 6th condition the judge found at paragraph [165] that Henry Bell used the word SUPREME in a way that would be understood by the average consumer as being purely descriptive. Hence the sign has not been used as a trade mark at all.   That meant that the 5th condition was not satisfied.   As there had been no use of the sign as a trade mark it also meant that the 6th condition could not be satisfied.   Thus, the claims under s.10 (1) and art 9 (1) (a) failed.

As to the claim under s.10 (2) and art 9 (1) (b), the judge referred to his review of the law in Enterprise v Europcar, He said at paragraph [185]:
"For the purposes of its claim under Article 5(1)(b)/Article 9(1)(b), Supreme Petfoods relies upon the UK and Community Stylised Word Marks and the UK and Community Ribbon Marks I have considered the average consumer and the distinctive character of these Trade Marks above. I shall assume that Henry Bell has used the sign SUPREME in relation to its goods, which are identical goods to those covered by these Trade Marks. The sign is visually, aurally and conceptually identical to the SUPREME element of these Trade Marks, but there is no similarity with any of the graphical elements of these Trade Marks. In my judgment there is no likelihood of confusion, because there is no distinctive resemblance between the sign and the Trade Marks. The presence of the common non-distinctive element consisting of the word SUPREME is not enough for a likelihood of confusion. Furthermore, even if there might otherwise be a likelihood of confusion, the context of the use, which is always subsidiary to the prominent and well-known Mr Johnson's® branding, would suffice to negate such a likelihood."
He thus dismissed the claims under those heads.

On the claims under s.10 (3) and art 9 (1) (c) the judge referred again to his judgment in Europcar and also to Red Bull. He found that Supreme had not established that the Ribbon Marks had the requisite reputation and even if it had the average consumer would not link Henry Bell's use of the sign SUPREME with the Ribbon Marks, since there is no similarity apart from the non-distinctive word SUPREME. Even if there was a link, he did not consider that Supreme  had shown that Henry Bell's use of the sign SUPREME had been, or was likely to be, detrimental to the distinctive character of the Ribbon Marks. The distinctive character of the Ribbon Marks resided in the graphical elements. There was nothing similar in Henry Bell's sign. Furthermore, use of the sign SUPREME was commonplace in the animal food sector. Moreover, the defendant had due cause to use that sign in that its use was entirely descriptive.  Overall, his lordship concluded that Henry Bell's use of the sign SUPREME did not amount to unfair competition with Supreme Petfoods and was in accordance with honest practices in industrial and commercial matters. Accordingly, Henry Bell had a defence under s.11 (2) (b) of the Act and art 12 (b) of the directive.

Counsel for the claimant conceded in his closing submission  that if the claim under s,10 (2) and art 9 (1) (b) failed so too would his claim for passing off.

When taken together Mr Justice Arnold's decisions in Supreme Petfoods and Europcar are almost a text book on the law of trade mark infringement and to the some extent the law of passing off.  Those judgments analyse, systematize and simplify nearly two decades of arcane and in some respects contradictory case law of the Court of Justice and the General Court. For that practitioners owe him a great debt of gratitude. Should anyone wish to discuss this case note, he or she should not hesitate to call me on 020 7404 5252 or contact me through this form.

Unregistered Design Rights: G-Star Raw v Rhodi

Photo Wikipedia




















In G-Star Raw CV v Rhodi Ltd and Others [2015] EWHC 216 (Ch) (6 Feb 2015) G-Star Raw sued Rhodi Ltd and five other companies and two directors of those companies for infringing its design rights in the designs of two ranges of jeans by importing into, and distributing in, the UK jeans that the defendants knew to be infringing articles. The defendants challenged the subsistence of design right. They denied copying and any knowledge of the alleged infringements. They counterclaimed for declarations of non-infringement and the recovery of moneys that had been paid to G-Star under a bank guarantee. The two directors also denied any personal liability for any wrongdoing by their companies

The claim and counterclaim came on before Mr Richard Spearman QC sitting as a judge of the High Court. Mr Spearmam gave judgment to the claimant against the first, second, fourth and fifth corporate defendants but dismissed the claims against the third and sixth defendant companies. He also dismissed the claim against the directors and the defendants' counterclaim against the claimant.

On the subsistence of design rights the deputy judge adopted the judgment of Mr Justice Lewison in  Virgin Atlantic Airways Ltd v Premium Aircraft Interiors Group Ltd and Another (2009) 32(4) IPD 32031, [2009] ECDR 11, [2009] EWHC 26 (Pat) between paragraphs [27] and [38] of his judgment. The claimant called the designer of its jeans to give evidence of the process by which she had created them. Mr Spearman concluded at paragraph [60] that:
"This account was clear, compelling and supported by both contemporary documents, including original pattern pieces which were produced for inspection in court, and the statement of Mr Morisset. On the basis of this evidence, and having regard to other undisputed facts which mean that the criteria contained in section 213(5) of the CDPA are satisfied in the present case, in my judgment it is plain that unregistered design rights subsist in the Arc Pant Designs (see section 213) and that G-Star is the owner of those rights (see section 215)."
The deputy judge also found that garments made to those designs were first made available in 2008.

Although Mr Spearman acknowledged at paragraph [88] that it was clear from s.226 (2) of the Copyright Designs and Patents Act 1988 in that design right is infringed by making articles exactly or substantially to a design rather than copying the whole or substantial part of the original he looked for objective similarities and an opportunity to copy and then sought an explanation from the defendants for those similarities. The similarities that he found between the defendants' jeans and the claimant's was "striking".  In his view the defendants had not provided a satisfactory explanation of how the Rhodi Styles were produced, or come anywhere near rebutting the inference that they were produced by copying the claimant's designs. In the deputy judge's judgment, the similarities between the Arc Pant and the Rhodi Styles arose from copying.

As the defendants' jeans had been manufactured overseas G-Star Ray had to prove that the defendants knew or had reason to believe that those jeans were infringing articles for the purpose of s.227 (1) (a), S.228 (3)  included in the definition of "infringing article" an article that has been or is proposed to be imported into the United Kingdom, and its making to that design in the United Kingdom would have been an infringement of design right in the design or a breach of an exclusive licence agreement relating to the design. Mr Spearman found evidence that the first, second, fourth and fifth defendants had the requisite knowledge but not the other defendants.

This case was decided largely on its own facts and followed well established authority. It did not establish any new principles or otherwise change the law. It is nevertheless worth reading for its analysis of the legislation and review of the case law. Should anyone wish to discuss this article or design right law generally he or she should call me on 020 7404 5252 during normal office hours or use my contact form.

Further Reading

2 March 2015  Jean Wars - Lessons from G-Star Raw v Rhodi   IP North West

31 January 2015

Threats: Global Flood Defence Systems Ltd v Van Den Noort Innovations BV

Lord Esher MR: the judge in Ungar v
Sugg

Photo Wikipedia
One of the peculiarities of our intellectual property law is the threats action. It arises from provisions of the Patents Act 1977, Registered Designs Act 1949, Copyright, Designs and Patents Act 1988, Trade Marks Act 1994, The Community Designs Regulations 2005 and The Community Trade Mark Regulations 2006 that enable persons aggrieved by threats of infringement proceedings whether express or implied to sue the person making such threats (and his lawyer or trade mark attorney) if those threats prove to be unjustified. There are no similar provisions in other areas of our law and except for a few Commonwealth countries and the Irish Republic no similar provisions in other countries' intellectual property laws. These provisions ensnare foreign intellectual property owners and even experienced English commercial litigators.

This legislation has been criticized many times. In Intellectual Property 'Groundless Threats' Actions To Be Tackled By Government 17 April 2013 DACbeachcroft wrote:
"The complexities, in relation to patents, designs and trade marks, mean that:
  • IP rights owners are often simply advised to write opaque letters to infringers referring only to the existence of certain trade mark registrations or design rights but with no evident request to desist or take other action;
  • Lawyers have found themselves the subject of legal proceedings when they have simply sought to settle an IP claim without the issue of legal proceedings;
  • Claimants are often driven to threaten legal proceedings for infringement of certain areas not covered by the 'threats' provisions, eg, for copyright infringement when the real (unsaid) claim is for instance in respect of design right or trade mark infringement;
  • Intended defendants cannot obviously understand what they are being asked to do or explain."
I have warned Americans of the hazards of this legislation in Consider the Implications of Foreign Laws Before Sending a Cease and Desist Letter Intellections June 2005, The Law Commission considered threats actions in Patents, Trade Marks and Design Rights: Groundless Threats in April 2014 and recommended that they should stay albeit with reforms. The basic justification for threats actions is that intellectual property litigation is particularly pleasant - Lord Esher MR famously compared it to what was probably a strain of bird flu in Ungar v Sugg (1892) 9 RPC 113 - and folk should not be allowed to threaten it willy nilly.

All this is a roundabout but I hope nonetheless instructive and entertaining introduction to Judge Hacon's decision in Global Flood Defence Systems Ltd and Another v Van Den Noort Innovations BV and Others [2015] EWHC 153 (IPEC) (29 Jan 2015). The threats were notices that appeared on the defendant's website and in a letter to Sir Peter Luff MP after it fell out with the claimants in February 2014 which readers will find between paragraphs [9] and [11] of the judgment:
"9.  The copy of the first of the Website Notices in the evidence was taken from the first defendant's website on 17 February 2014. It was in relevant part as follows:
'Important message
We are sorry to inform you that we have terminated the cooperation with Global Flood Defence Systems Ltd by the first of January 2014.
Global Flood Defence Systems LTD in the UK is therewith not longer allowed to manufacture, marketing and distribute the Self Control Flood Barriers.
Infringements of our patents by any party, which have not explicit our written approval, will be prosecuted by court.'
10 The copy of the second Website Notice in the evidence was dated 4 March 2014. It was headed "Important warning with regard to global Flood Defence Systems!" and stated that licences granted to the claimants had come to an end. It went on as follows:
'Global Flood Defence Systems Ltd and UK Flood Barriers Ltd are, however, still marketing the Self Closing Flood Barrier as is shown on their website.
At this stage, we have taken legal proceedings against Global Flood Defence Systems Ltd and UK Flood Barriers Ltd for infringing our patent rights as well as our intellectual property rights.
Under these circumstances we need to advise you that Infringements of our patents by any party (also buyers), without our explicit and written approval, will be brought to court.'
11. The letter to Sir Peter Luff MP of 3 March 2014 included this:
'We have seen an invitation of UK Flood Barriers for the reception of "Britain Prepared - A Flood Resilient Society on the 11 March 2014 at the Churchill Room, House of Commons, London SW1A 0AA.
On the list of speakers we see Mr. Frank Kelly CEO of UK Flood Barriers. Therefore it is our duty to warn you that Mr Kelly will speeks in his presentation about the Self Closing Flood Barriers, he is not allowed to do this and will probably suggest the stakeholders that Global Flood Defence Systems Ltd or UK Flood Barriers Ltd are the inventors and / or own the IP of these or same specific barriers.
At this moment we have taken proceedings against Global Flood Defence Systems Ltd for infringing our patents and the intellectual property rights.
We will warn you that infringements of our patents by any party (also buyers), which have not explicit our written approval, will be prosecuted by court.
The new distributor of the Self Closing Flood Barriers (SCFB) for the UK and Ireland is Flood Control International Ltd at Tavistock, Devon.
When you need more information please contact us or our Sollicitor Mr. Richard Arnold from Quality Solicitors Wilson Brown at Kettering rarnold@qswblaw.com."
There was a third notice put on to the home page of the first defendant's website on about 7 March 2014 but it adds nothing."
S.70 (1) of the Patents Act 1977 provides:
"Where a person (whether or not the proprietor of, or entitled to any right in, a patent) by circulars, advertisements or otherwise threatens another person with proceedings for any infringement of a patent, a person aggrieved by the threats (whether or not he is the person to whom the threats are made) may, subject to subsection (4) below, bring proceedings in the court against the person making the threats, claiming any relief mentioned in subsection (3) below."
There was no doubt that those notices and the contents of the letter to Sir Peter were "threats" within the meaning of that section or that the claimants were persons aggrieved. Right now the defendants don't actually have a patent that covers the claimants' flood defence products though they have applied to the European Patent Office for one.  The claimants sued the defendants for groundless threats and applied for summary judgment under CPR Part 24.

The only defence to the application was justification under s.70 (2A):
"(2A) If the defendant or defender proves that the acts in respect of which proceedings were threatened constitute or, if done, would constitute an infringement of a patent -
(a) the claimant or pursuer shall be entitled to the relief claimed only if he shows that the patent alleged to be infringed is invalid in a relevant respect;
(b) even if the claimant or pursuer does show that the patent is invalid in a relevant respect, he shall not be entitled to the relief claimed if the defendant or defender proves that at the time of making the threats he did not know, and had no reason to suspect, that the patent was invalid in that respect."
The defendants relied on the provision that the rights granted by a patent are backdated to the date of grant by s.69 (1)  of the Patents Act 1977 and they argued that even though they didn't have a patent just now they might have a patent by the time of trial.

This question had arisen in  Patrick John Brain v Ingledew Brown Bennison & Garrett [1996] FSR 341 which the judge considered between paragraphs [21] and [24]:
21 The related matter which remained in dispute in the appeal was this: given that a party could sue for a threat to bring proceedings to enforce s.69 rights, was there a defence of justification available to the party who issued the threat? (At the time of the Brain litigation such a defence was provided for by what was then s.70(2) of the Act. The change introduced by the repeal of that subsection and the introduction of s.70(2A) makes no difference here.) Aldous LJ observed that it would be illogical to provide for a cause of action for a threat to bring proceedings for infringement of s.69 rights and yet deprive the threatening party of a defence of justification. Accordingly there is such a defence. He said this (at p.344):
'Section 70 is designed to prevent groundless threats of patent proceedings being made. Thus it would be illogical to construe section 70 as giving rights to a person threatened with proceedings for infringement of a patent albeit in respect of pre-grant acts, if the threatener could not establish that his threats were proper. That illogicality does not in my view arise. Section 70(2)(a) allows the threatener to avoid liability if he proves that the acts in respect of which the proceedings were threatened constitute or if done would constitute an infringement of a patent. The acts, to be an infringement, must fall within section 60. That section is to be read subject to section 69. Thus a threat of the type contemplated in this case, is a threat to bring proceedings when the patent is granted for acts which are actionable acts by reason of section 69. No difficulty arises in deciding whether the threats can be justified, provided appropriate steps are taken to ensure the patent is granted before the action comes to trial.'
22. Thus, Aldous LJ's primary view was that where a defence of justification was being run by a party threatening to bring proceeding for infringement of s.69 rights, that party should make sure that the patent is granted before trial. He went on to consider what the position might be if the patent had not been granted by then. He said this (at p.348):
'If, however, there is an extraordinary delay in grant of the patent, the court could perhaps look at the published specification and decide, upon the balance of probabilities, whether the alleged acts will infringe the patent when granted and whether a valid patent will be granted.'
23. Hobhouse LJ agreed that threats to bring proceedings for infringement of s.69 rights could be brought under s.70(1) and justified under what was then s.70(2). But he was not persuaded that a defence under s.70(2) could ever be available unless the patent had been granted before the trial (at p.355). Beldam LJ agreed with both judgments.
24. Following the appeal the plaintiffs applied to strike out the defence of justification under s.70(2) on the ground that the second defendant's patent application was still pending before the European Patent Office. As a consequence the defendants were unable to give particulars of each patent claim which they said would be infringed or of the respective alleged infringing acts. Laddie J ([1997] FSR 271) considered the earlier judgment of the Court of Appeal. He ruled that there was a strict limit to the defence of justification available under s.70(2) where the threat had been in relation to s.69 rights: there could be no such defence if the patent had not been granted by the time of the trial."
The claimants made the point that the defendants had not alleged that they would have a patent by the time of trial. The judge took the view that this matter should not turn on a pleading point and gave the defendants' permission to amend so that they could rely on s.70 (2A).

Judge Hacon then considered whether the contention that the defendants would have a patent by trial was sufficiently plausible to resist an application for summary judgment and decided at paragraph [35] that it was:
"Mr van den Noort's evidence that he had been informed by the second defendant's patent attorney that the patent will be granted in the near future is at least something, and it has not been contradicted by the claimants. Secondly, it is apparent from the exchanges between the patent attorney and the EPO that the prosecution of the patent has reached the stage at which the patent attorney is submitting claims intended to satisfy objections raised by the EPO examiner. Of course the examiner may never be satisfied. Alternatively, these exchanges might go on for a long time, more than a year, before the EPO is finally prepared to grant the patent. But taking a realistic view on the limited information I have, it seems to me that there is a real prospect (as opposed to a fanciful one) that the patent will be granted in the course of this year. Such is the crowded state of the IPEC diary currently, absent an application for a speedy trial (there has been none) the trial will not be fixed until December 2015. For those reasons I reject Mr Campbell's first argument."
The claimants also argued that the threats could never be justified but that would have required argument over the construction of the claims of the application that was not appropriate for summary judgment proceedings. They also contended that any defence under s.70 (2A) should apply now. The judge rejected that on the ground that it was incompatible with his earlier finding that the defendants would be entitled to rely on that subsection if they get their patent by the date of trial. Finally, His Honour rejected the claimants application for an order that leave to defend should be conditional upon the defendants paying £50,000 into court as he did not believe that this matter was to be approached as if it were a runner-up prize. The need for such relief must always be justified on the facts and will only be granted if it is necessary to do justice between the parties. Although the defendants had made an incorrect statement in alleging that infringement proceedings had already started that was not a sufficient ground for the order sought by the claimants.

This is an interesting decision and possibly an important one as it extends the Court of Appeal and Mr Justice Laddie's reasoning in Brain. There was a lot of disappointment among practitioners when the Law Commission rejected the opportunity to get rid of threats actions. They are definitely a dampener on litigation for they reinforce the impression that IP is an arcane area of the law that is best avoided. In view of the reforms to IPEC, the introduction of the small claims track and the advent of the Unified Patent Court can it still be said that IP litigation is so much more awful than any other type?

If anyone wants to discuss this judgment or threats actions in general give me a ring on Monday on 020 7404 5252 or use my contact form.