24 May 2015

Another cautionary tale, - Stretchline v H & M

Jane Lambert














Yesterday I told the tale of the claimant who sought an interim injunction and ended uo with a court order to pay £27 million damages to the defendant (see "Be careful for what you wish for when seeking an interim injunction - it may cost you plenty!" 23 May 2015). Today I have another cautionary tale. This time it is about the defendant which barred itself from contesting the validity of the claimant's patent by the terms of a settlement agreement.

The issue arose in Stretchline v H&M (UK) [2014] EWHC 3605 (Ch) (14 Oct 2014). In order to settle patent infringement proceedings in England and the USA the parties had entered a settlement agreement which provided
"...... the Parties each agree, on behalf of themselves, their successors or assigns, not to commence or pursue, or voluntarily assist the pursuit of, any further proceedings relating to or arising from the claims against the other Parties, or their parents, subsidiaries, assigns, transferees, principles, agents, officers or directors, in this jurisdiction or elsewhere (otherwise than for the purpose of carrying into effect the terms of this Settlement Agreement)."
The agreement was scheduled to an order staying the proceedings in England in Tomlin form  "except for the purpose of carrying such terms into effect" for which purpose each party was given liberty to apply. The claimant suspected that the defendant was not complying with this agreement and brought proceedings against it for patent infringement and breach of contract. The defendant pleaded that the patent was invalid. The claimant asked the court to determine whether the settlement agreement prevented the defendant from pleading invalidity. The application came on before Mr Justice Sales (as he then was) who decided at paragraph [43] that it was.

The defendant appealed to the Court of Appeal  on the following grounds:
  1. The judge was wrong to conclude that the settlement agreement precluded the defendant from raising the issue of the patent's validity either by way of counterclaim or defence; 
  2. Alternatively, if the agreement did preclude the defendant from raising the issue by way of counterclaim, it must nevertheless be entitled to raise it by way of defence, and to do so by way of defence both to the claim for breach of the agreement and to the claim for infringement;
  3. The claimant  had materially altered its position as to the scope of the patent, and in these proceedings was now contending that the monopoly it confers is much broader than was or could have been foreseen at the date of the settlement agreement; and
  4. The parties cannot be taken to have intended by the settlement agreement that the claimant could thereafter advance whatever fancy interpretation of the patent it chose without imperilling the patent's validity, and it would be manifestly unjust were the agreement to be interpreted in such a way as to allow that to happen.
The appeal was heard by Lords Justices Aikens, Kitchin and Briggs in Stretchline Intellectual Properties Ltd v H&M Hennes & Mauritz UK Ltd [2015] EWCA Civ 516 (22 May 2015).

Delivering the judgment of the Court Lord Justice Kitchin broke the first issue down into two. First, he considered whether the defendant was precluded by the settlement agreement from raising invalidity as a defence to enforcement of the settlement terms.  His starting point was that
"a settlement agreement such as this must be construed in just the same way as any other contract. The aim is to ascertain what a reasonable person would have understood the parties to mean by using the language of the agreement against the background which would reasonably have been available to them at the time."
He considered the following factors to be relevant:
"27, First, the recitals say in terms that the parties intended by the settlement agreement to bring to an end the whole dispute between them, and to do so on a worldwide basis. Further, in referring to the denial by H&M of liability and the claims the parties had or could have asserted, the recitals are plainly cast in terms broad enough to encompass the challenge by H&M to the validity of the Patent and its foreign equivalents.
28. Second, clause 3.1 provides a contractual framework for the regulation of H&M's activities going forward. H&M agreed that from the date of the agreement (and subject to the H&M Low Volume Fabric and the Sell-Through Period) it would not deal in any way in any products falling within the scope of the Patent or its foreign equivalents in any territory for which such a patent had been granted and for so long as the relevant patent remained in force in that territory. It also agreed to pay to Stretchline the Settlement Sum of £235,000 in full and final settlement of all claims (present and future) "in relation to" the subject matter of the earlier proceedings.
29. Third, clause 4.1 contains a general release and it is cast in the broadest of terms. The parties agreed to the terms of the settlement agreement in full and final settlement of all possible claims relating to the subject matter of the proceedings anywhere in the world. In my view this is plainly wide enough to encompass the allegation of invalidity of the Patent made by H&M both in its defence and in its counterclaim.
30. Fourth, the agreement not to sue contained in clause 5.1 is also drawn in very general language. So far as material, H&M agreed that it would not begin or pursue any proceedings "relating to or arising from" the Claims, as defined. Mr Burkill contends that the wording of this clause together with that of the release in clause 4.1 is apt to describe the former infringement proceedings but that it does not extend to revocation proceedings, and still less the deployment of invalidity as a defence. I disagree. I have no doubt that this phrase is broad enough to encompass a defence that the Patent is invalid and a counterclaim for its revocation.
31. Fifth, the view to which I have come as to the proper interpretation of clauses 4 and 5 is reinforced by clause 6, by which the parties agreed to a stay of the proceedings save for the purpose of carrying the terms of the settlement agreement into effect. Here again the parties have made clear their intention to dispose of the proceedings (including the defence and counterclaim and all of the issues they raise) on the terms of the agreement.
32. In my judgment the inescapable conclusion from the foregoing is that the reasonable person would have understood that the parties intended by the settlement agreement to compromise all issues in dispute between them, including the issue of the validity of the Patent, and to substitute for their claims of, respectively, infringement of patent and invalidity or revocation, a contractual arrangement which would from that time regulate the dealings of H&M in products falling within the scope of the Patent and its equivalents in other jurisdictions.
33. I believe the parties recognised and agreed that, as from the date of the settlement agreement and for so long as the Patent remained in force, any dealings by H&M in products falling within the scope of the Patent would amount to an actionable breach of the agreement. Of course the Patent might expire through effluxion of time or because of a decision by Stretchline not to renew it. But I am entirely satisfied that an essential component of the agreement was the compromise by H&M of its right to challenge the validity of the Patent either by way of counterclaim or defence. It agreed not to exercise that right either by way of answer to a claim for breach of the agreement or in any other way."
By the same token Lord Justice Kitchin decided at paragraph [39] was precluded by the agreement from raising a fresh action of patent infringement.  That effectively removed the need to consider the defendant's second and third argument.  As for the fourth, attractively though it had been presented, the Court was unable to accept it because the agreement barred all arguments by both parties that had or could have been raised in the previous proceedings.

There was an argument that I would have liked to have run which does not seem to have occurred to any of the parties, the Court of Appeal or the judge below. A patent confers a monopoly which affects the public as well as the parties to the action. Is it in the public interest to enforce a contract term that precludes a party from challenging a monopoly to which the patentee may well not be entitled? It is very much the argument that was used in answer to the assertion that a licensee is estopped from challenging the validity of his licensor's patent by the rule in Crossley v Dixon (1863) 10 HLC 283.

The other point to note is that this settlement agreement was entered after a mediation. This case underlines the importance of referring a patent case to a mediator who is also a specialist in patent litigation. For more on this topic see my article IP  Mediation 22 May 2015, 4-5 IP Tech.

Should anyone want to discuss this article, compromise negotiations, settlement agreements or patents in general he or she should call me on 020 7404 5252 during normal office hours or send me a message through my contact form.

    23 May 2015

    Be careful for what you wish for when seeking an interim injunction - it may cost you plenty!

    Jane Lambert















    Whenever a court grants an interim injunction, or a respondent offers an undertaking, to do or refrain from doing something that might infringe a right claimed by the applicant, the applicant has to offer the respondent and in the most cases the court "a cross undertaking as to damages." Wording that is recommended for freezing injunctions but which could be adapted for other orders mutatis mutandis runs as follows:
    "If the court later finds that this order has caused loss to the Respondent, and decides that the Respondent should be compensated for that loss, the Applicant will comply with any order the court may make."
    The need for such a cross-undertaking was considered by the House of Lords in the landmark case of American Cyanamid Co (No 1) v Ethicon Ltd [1977] FSR 593, [1975] AC 396, [1975] 1 All ER 504, [1975] 2 WLR 316, [1975] UKHL 1. An interim injunction is intended to be a temporary remedy to prevent a fait accompli where an award of damages would probably not put right any wrongdoing. The court does not need to know which side will win in order to grant such an injunction. It is enough for it to know that the applicant can win and if he doesn't the respondent can be compensated adequately by an award of damages.

    Such a cross undertaking was offered by AstraZeneca when it sought an interim injunction against KRKA dd Novo Mesto and Consilent Health Ltd to prevent them from importing from Slovenia and distributing to the NHS a generic version of a medicine called esomeprazole which is used to treat ulcers and other illnesses caused by gastric acid secretion. AstraZeneca had a patent for esomeprazole which they said would be infringed by the importation and sale of the generic product. They issued proceedings in the Patents Court and sought an interim injunction. Though they did not believe that their product did infringe the patent KRKA and Consilio submitted to an order by Mr Justice Vos on 8 Oct 2008 not to import or distribute the drug until judgment or further order.

    In Ranbaxy (UK) Ltd v AstraZeneca AB [2011] EWHC 1831 (Pat), [2011] FSR 45 which I discussed in Swiss Style Claims: Ranbaxy v AstraZeneca 16 July 2011 Mr Justice Kitchin (as he then was) decided that Ranbaxy's version of esomeprazole did not infringe AstraZeneca's patent. The same judge, who has now been elevated to the Court of Appeal, said at paragraph [6] of his judgment in AstraZeneca AB and Another v KRKA dd Novo Mesto and Another [2015] EWCA Civ 484 (21 May 2015):
    "The judgment in the Ranbaxy proceedings had a significant impact upon the market for it opened the door to the marketing of generic esomeprazole products by a series of other companies. Arrow, together with AZ, began to sell a generic tablet in July 2011; the defendants launched Emozul in September; Mylan launched a generic capsule in November; and TEVA launched a generic tablet in December. The introduction of all of these generic esomeprazole products into the market had the predictable consequence of driving the price down and had a significant impact upon the success of the launch of Emozul. Moreover, the defendants lost the opportunity to enjoy almost a year as the only generic available to the market. This loss, described as the loss of the "first mover" advantage, was, so the defendants maintained, of vital importance to the case and it formed the basis for their claim for damages in excess of £32 million in respect of their losses, not just during the period of the injunction but also following the launch of Emozul in 2011."
     Mr Justice Floyd (as he then was) lifted the interim injunction on 29 July 2011 and KRKA and Consilient sought an inquiry as to the damages to which those companies were entitled under AstraZeneca's cross undertaking between 8 Oct 2008 and 29 July 2011. Their application came on before Mr Justice Sales (as he then was) in AstraZeneca AB and Another v KRKA, DD Novo Mesto and Another [2014] EWHC 84 (Pat) and the learned judge awarded them more than £27 million. Lord Justice Kitichin observed at paragraph [1] of his judgment in the above appeal that it is said to be the largest award ever made by the Patents Court upon an inquiry of this kind.

    AstraZeneca appealed and the appeal came on before Lords Justices Kitchin, Floyd and Longmore. It was common ground that the general principles to be applied in assessing the damages payable under a cross-undertaking given in respect of the grant of an interim injunction are those explained by Mr Justice Norris at paragraph [5] of his judgment in Les Laboratoires Servier v Apotex Inc[2008] EWHC 2347 (Ch), [2009] FSR 3:
    "The principles of law sufficient to enable me to quantify compensation in this case may be shortly stated:-
    (a) The undertaking is to be enforced according to its terms. In the instant case (as in many others) it is that Servier will comply with any order the court may make "if the court…finds that this Order has caused loss to the defendants." The question for me is therefore: what loss did the making of the Order and its continuation until discharge cause to Apotex?
    (b) The approach is therefore essentially compensatory and not punitive;
    (c) The approach to assessment is generally regarded as that set out in the obiter observation of Lord Diplock in Hoffmann-La Roche v Secretary of State for Trade [1975] AC 295 at 361E namely:-
    "The assessment is made upon the same basis as that upon which damages for breach of contract would be assessed if the undertaking had been a contract between the plaintiff and the defendant that the plaintiff would not prevent the defendant from doing that which he was restrained from doing by the terms of the injunction: see Smith v Day (1882) 21 Ch D 421 per Brett LJ at p 427."
    (d) What Apotex was trying to do (and what the Order restrained it from doing) was to enter a new market for the sale of generic perindopril. It was denied exploitation of this opportunity. The outcome of such exploitation is attended by many contingencies but Chaplin v Hicks [1911] 2 KB 786 establishes (per Vaughan Williams LJ at p.791) that whilst "the presence of all the contingencies on which the gaining of the prize might depend makes the calculation not only difficult but incapable of being carried out with certainty or precision" damages for the lost opportunity are assessable.
    (e) The fact that certainty or precision is not possible does not mean that a principled approach cannot be attempted. The profits that Apotex would have made from its exploitation of the opportunity to sell generic perindopril depend in part upon the hypothetical actions of third parties (other potential market participants) and in part upon Servier's response to them. A principled approach in such circumstances requires Apotex first to establish on the balance of probabilities that the chance of making a profit was real and not fanciful: if that threshold is crossed then the second stage of the inquiry is to evaluate that substantial chance (see Allied Maples v Simmons & Simmons [1995] 1 WLR 1602). As Lord Diplock explained in Mallett v McMonagle [1970] AC 166 at 176E-G
    "…. in assessing damages which depend on its view as to what…. would have happened in the future if something had not happened in the past, the Court must make an estimate as to what are the chances that a particular thing….. would have happened and reflect those chances, whether they are more or less than even, in the amount of damages it awards…"
    (f) The conventional method of undertaking this exercise is to assess damages on a particular hypothesis and then to adjust the award by reference to the percentage chance of the hypothesis occurring. In many cases it is sufficient to postulate one hypothesis and make one discount: but there is no reason in principle why one should not say that either Scenario 1 or Scenario 2 would have occurred and to discount them by different percentages. That is the course which Mr Watson QC urged in the present case: and I note that it has some support in Earl of Malmesbury v Strutt & Parker [2007] PNLR 570."
    AstraZeneca contended that the judge had fallen into error in over 50 different respects though at the hearing they focused on the following submissions. First, the judge had no proper basis for drawing the conclusions he did from the evidence Secondly, the discount that he allowed for uncertainty was wholly inadequate and in arriving at it the judge had failed to take into account a series of obviously relevant matters. Thirdly, the judge has assumed that the NHS would have begun to implement switching immediately after the launch of the respondents' product  but that was contrary to their own pleaded case and had no basis in the evidence. Overall,  the judge awarded a sum that far exceeded Consilient's own contemporary projections and had been arrived at on a basis which was flawed.

    The Court of Appeal rejected those contentions. On the first, Lord Justice Kitchin said at paragraph [78]:
    "The judge had careful regard to all of the evidence before him but came to the conclusion that there was no expectation that any other generic esomeprazole PPI product would be introduced into the market by any other provider any earlier than in fact occurred. He was fully conscious that the Medicine Managers engage in horizon scanning but in this case there was nothing on the horizon to see. The impediment for other providers was the fear of AZ's patent for Nexium, and it was a fear that was properly founded in AZ's vigorous efforts to reinforce their patent rights until judgment was given against them in the Ranbaxy action."
    As for the second he said at paragraph [84]
    "the uncertainty discount, if any, which it is appropriate to apply in any particular case must be determined upon the facts of that case and little if any assistance can be derived from looking at the discounts arrived at by other judges in different circumstances. There is not and cannot be any benchmark or yardstick. It follows that the judge cannot be criticised for arriving at a discount which is smaller than that which has been applied in other cases."
    As for the final argument Lord Justice Kitchin said at paragraph [86] that "the judge has made findings which are properly founded upon the evidence before him." For all of those reasons he dismissed the appeal and the other two Lords Justices agreed with him.

    There was a time when interim injunctions were applied for in intellectual property cases almost as a matter of course. There was every incentive to bring such applications because an injuncted defendant would be forced to negotiate and there was much less risk because the usual order as to costs was that the successful party's costs would be costs in the cause. As most actions were settled after the interlocutory injunction proceedings such costs orders were very often compromised. The Civil Procedure Rules required the courts to assess costs of interlocutory applications summarily. The possibility that they might have to cough up many thousands of pounds within 14 days if their  applications failed made claimants think twice before bringing them. The risk that a claimant may have to pay as much as £27 million if his application fails is likely to have a similarly chilling effect. Interim injunctive relief will now be sought only in very strong cases and in such cases undertakings in terms of the application notice are much more likely to be forthcoming,

    Should anyone wish to discuss this case or patent law generally, he or she should call me on 020 7404 5252 during office hours or use my contact form.

    19 May 2015

    The Difference between Reputation and Goodwill: Starbucks (HK) Ltd and Another v British Sky Broadcasting Group PLC and Others


    Supreme Court of the United Kingdom
    Photo Pam Fray
    Source Wikipedia






















    In Reckitt & Colman Products Ltd v Borden Inc [1990] 1 WLR 491, [1990] RPC 341, [1990] WLR 491, [1990] 1 All ER 873, [1990] UKHL 12, Lord Oliver said:
    "The law of passing off can be summarised in one short general proposition - no man may pass off his goods as those of another. More specifically, it may be expressed in terms of the elements which the plaintiff in such an action has to prove in order to succeed. These are three in number. First, he must establish a goodwill or reputation attached to the goods or services which he supplies in the mind of the purchasing public by association with the identifying "get-up" (whether it consists simply of a brand name or a trade description, or the individual features of labelling or packaging) under which his particular goods or services are offered to the public, such that the get-up is recognised by the public as distinctive specifically of the plaintiff's goods or services. Secondly, he must demonstrate a misrepresentation by the defendant to the public (whether or not intentional) leading or likely to lead the public to believe that goods or services offered by him are the goods or services of the plaintiff. Whether the public is aware of the plaintiff's identity as the manufacturer or supplier of the goods or services is immaterial, as long as they are identified with a particular source which is in fact the plaintiff. For example, if the public is accustomed to rely upon a particular brand name in purchasing goods of a particular description, it matters not at all that there is little or no public awareness of the identity of the proprietor of the brand name. Thirdly, he must demonstrate that he suffers or, in a quia timet action, that he is likely to suffer damage by reason of the erroneous belief engendered by the defendant's misrepresentation that the source of the defendant's goods or services is the same as the source of those offered by the plaintiff."
    In  Starbucks (HK) Ltd and Another v British Sky Broadcasting Group PLC and Others (Rev 1) [2015] UKSC 31 (13 May 2015) the Supreme Court considered the first of Lord Oliver's elements. It had to decide whether it was enough for a claimant to establish a reputation attached to the goods or services that it supplies in the minds of the purchasing public by association with the identifying get-up or whether the claimant actually had to have a business in the UK.

    The claimant companies operated a number of mainly Mandarin language TV channels in Hong Kong under the trade mark









    The defendants operate a TV service in English in the UK under the sign








    The claimants sued the defendants for trade mark infringement and passing off in Starbucks (HK) Ltd and Others v British Sky Broadcasting Group Plc and others [2012] EWHC 3074 (Ch) (2 Nov 2012). The case came on before Mr Justice Arnold who dismissed the claim for the reasons I discussed in my case note Community Trade Marks: Starbucks v Sky 16 Nov 2015. The claimants appealed to the Court of Appeal in Starbucks (HK) Ltd and Another  v British Sky Broadcasting Group Plc and Others [2013] EWCA Civ 1465 (15 Nov 2013). Lords Justices Patten, Pitchford and Mummery dismissed the appeal and affirmed the judgment of the court below. As there are Commonwealth and Irish decisions that seem to suggest that it is enough for a claimant to show that it is enough for a claimant to be known in a jurisdiction even if it does no business there the Supreme Court gave permission to the claimants to appeal on that point.

    The claimants argued that
    "the courts below were wrong, and in particular that (i) it was sufficient for PCCM to succeed in its passing off claim that it had established a reputation for the NOW TV name in connection with its IPTV service among a significant number of people in this country, even if they were not customers of PCCM's IPTV services in this country, but in Hong Kong, and (ii) in any event, PCCM had customers in this country, because a significant number of people were PCCM's customers in this country by virtue of having been exposed to PCCM's programmes on the websites and on international flights."
    The Supreme Court (Lords Neuberger, Sumption, Carnwath, Toulson and Hodge) reviewed AG Spalding & Bros v AW Gamage Ltd (1915) 32 RPC 273, 284, T Oertli AG v EJ Bowman (London) Ltd [1959] RPC 1, Star Industrial Co Ltd v Yap Kwee Kor [1976] FSR 256, 269 and  Erven Warnink BV v J Townend & Sons (Hull) Ltd [1979] AC 731, 752 and concluded at paragraph [20]:
    "it does appear that the courts in the United Kingdom have consistently held that it is necessary for a claimant to have goodwill, in the sense of a customer base, in this jurisdiction, before it can satisfy the first element identified by Lord Oliver. That this has been the consistent theme in the cases can be well established by reference to a series of House of Lords decisions, and a decision of the Judicial Committee of the Privy Council, over the past century."
    The claimants responded that
    "particularly in an age of global electronic communication and relatively quick and cheap travel, it is inconsistent with commercial reality and unrealistic in terms of practicality to treat the "reputation or goodwill" associated with a mark for a particular product or service as limited to jurisdictions in which there is a business with customers for the product or service, and incapable of extending to jurisdictions in which the mark is simply associated with the particular product or service as a matter of reputation."
    Furthermore
    "the notion that goodwill should be limited to jurisdictions where the claimant had business is wrong in principle: the question of where the claimant had goodwill was a matter of fact and evidence, not a matter of law. Further, in the present age of "international travel and the presence of the internet", he argued that it would be anachronistic and unjust if there was no right to bring passing off proceedings, particularly in relation to an electronically communicated service, in a jurisdiction where, as a matter of fact, the plaintiff's mark had acquired a reputation."
    They also relied on the English interlocutory decisions in  La Société Anonyme des Anciens Établissements Panhard et Levassor v Panhard Levassor Motor Company Ltd [1901] 2 Ch 513 and Sheraton Corporation of America v Sheraton Motels Ltd [1964] RPC 202, the Irish decision in C&A Modes v C&A (Waterford) Ltd [1978] FSR 126, the Canadian case of Orkin Exterminating Co Inc v Pestco Co of Canada Ltd (1985) 19 DLR (4th) 90, the Australian judgment in ConAgra Inc v McCain Foods (Aust) Pty Ltd (1992) 106 ALR 465, the South African Caterham Car Sales & Coachworks Ltd v Birkin Cars (Pty) Ltd [1998] 3 All SA 175 (A), [1998] ZASCA 44 and the New Zealand authority Dominion Rent A Car Ltd v Budget Rent A Car Systems (1970) Ltd [1987] 2 TCLR 91, [1987] NZCA 13.

    Lord Neberger, who gave judgment on behalf of all the judges who heard the appeal was unmoved.  He acknowledged at paragraph [50] that
    "it is both important and helpful to consider how the law has developed in other common law jurisdictions – important because it is desirable that the common law jurisdictions have a consistent approach, and helpful because every national common law judiciary can benefit from the experiences and thoughts of other common law judges."
    However, he was not persuaded thatall the  other common law jurisdictions took a different view from that of the UK:
    "In the present instance, the Singapore courts follow the approach of the UK courts, whereas the courts of Australia (subject to the High Court holding otherwise) and South Africa seem to favour the approach supported by PCCM. The position is less clear in other Commonwealth jurisdictions. In the United States of America, the approach appears to be consistent with that of the courts below in this case. Thus in Grupo Gigante SA De CV v Dallo & Co Inc (2004) 391 F3d 1088 the Court of Appeals for the 9th circuit said at p 1093 that "priority of trademark rights in the United States depends solely upon priority of use in the United States, not on priority of use anywhere in the world. Earlier use in another country usually just does not count". Accordingly it does not appear to me that there is anything like a clear trend in the common law courts outside the UK away from the "hard line" approach manifested in the UK cases discussed in paras 21-26 and 32-36 above."
    He decided at paragraph [47] that the appeal should be dismissed for the same reasons as it was dismissed in the courts below.  He considered that the Supreme Court should reaffirm that the law is that a claimant in a passing off claim must establish that it has actual goodwill in this jurisdiction, and that such goodwill involves the presence of clients or customers in the jurisdiction for the products or services in question. And, where the claimant's business is abroad, people who are in the jurisdiction, but who are not customers of the claimant in the jurisdiction, will not do, even if they are customers of the claimant when they go abroad. That had been the consistent view of the House of Lords and Privy Council for the last 100 years and while it was always open to the Supreme Court to change the law to take account of changing economic and social circumstances it had to be appreciated that change would bring uncertainty and possibly new anomalies.

    Having disposed of the appeal His Lordship considered two connected issues "namely (i) clarification as to what constitutes sufficient business to give rise to goodwill as a matter of principle, and (ii) resolution of the judicial disagreement as to the jurisdictional division of goodwill described by Lord Diplock in Star Industrial."

    As to the first issue Lord Neuberger said:
    "it seems clear that mere reputation is not enough, as the cases cited in paras 21-26 and 32-36 above establish. The claimant must show that it has a significant goodwill, in the form of customers, in the jurisdiction, but it is not necessary that the claimant actually has an establishment or office in this country. In order to establish goodwill, the claimant must have customers within the jurisdiction, as opposed to people in the jurisdiction who happen to be customers elsewhere. Thus, where the claimant's business is carried on abroad, it is not enough for a claimant to show that there are people in this jurisdiction who happen to be its customers when they are abroad. However, it could be enough if the claimant could show that there were people in this jurisdiction who, by booking with, or purchasing from, an entity in this country, obtained the right to receive the claimant's service abroad. And, in such a case, the entity need not be a part or branch of the claimant: it can be someone acting for or on behalf of the claimant. That is why, as explained in Athlete's Foot, the decision in Panhard et Levassor and the observations in Pete Waterman are compatible with the decision in Alain Bernardin."
    As to the second, His Lordship said:
    "an English court has to consider whether the claimant can establish goodwill in England, I consider that it was correct. In other words, when considering whether to give protection to a claimant seeking relief for passing off, the court must be satisfied that the claimant's business has goodwill within its jurisdiction."
    Having found in favour of the defendants the Supreme Court did not consider it necessary to deal with the other points raised by the defendants in support of the judgments below. Lord Neuberger explained that if the Court had allowed the appeal it would have remitted the appeal to the Court of Appeal to determine those issues.

    A particularly interesting part of the judgment is his reference to the balancing exercise between two competing public interests  to which Mr Justice Somers referred in Dominion Rent-A-Car, namely "on the one hand the public interest in free competition, on the other the protection of a trader against unfair competition by others". Balancing those interests Lord Neuberger said at paragraph [62]:
    "If it was enough for a claimant merely to establish reputation within the jurisdiction to maintain a passing off action, it appears to me that it would tip the balance too much in favour of protection. It would mean that, without having any business or any consumers for its product or service in this jurisdiction, a claimant could prevent another person using a mark, such as an ordinary English word, "now", for a potentially indefinite period in relation to a similar product or service. In my view, a claimant who has simply obtained a reputation for its mark in this jurisdiction in respect of his products or services outside this jurisdiction has not done enough to justify granting him an effective monopoly in respect of that mark within the jurisdiction."
    To that I can only say "bravo".

    This is a very well reasoned decision which is a pleasure to read. It is also an important one. IMHO at least as important as  SpaldingErven Warnink and even Reckitt & Colman and because of the discussion on the balancing of the conflicting public interests perhaps even more so. Should anyone want to discuss this case or passing off in general he or she should call me on 020 7404 5252 during office hours or use my contact form.

    13 May 2015

    Red Berries - Bodo Sperlein Ltd v Sabichi Ltd

























    In  John Kaldor Fabricmaker UK Ltd v Lee Ann Fashions Ltd [2014] EWHC 3779 (IPEC) (21 Nov 2014) which I discussed in Is this a copy? John Kaldor Fabricmaker UK Ltd v Lee Ann Fashions Ltd 11 Dec 2014, His Honour Judge Hacon assessed the steps to be taken by the court when assessing an allegation of infringement of copyright. He considered them again in  Bodo Sperlein Ltd v Sabichi Ltd and Another [2015] EWHC 1242 (IPEC) (8 May 2015) at paragraph [33] of his judgment:
    "In the absence of direct evidence of copying, the first of the steps to which I referred is to consider whether the claimant has established a prima facie inference of copying by reason of similarities between the copyright work and the defendant's work. In many cases (this is one) any inference of copying will come in the first instance from a comparison between the defendant's work and a publicly available design in the alleged chain of copying."
    He added at paragraph 35]:
    "As I said in John Kaldor (at [11]), the stronger the prima facie case of copying which can be inferred from any similarities, the more compelling the defendant's evidence of independent design must be to rebut that inference. Evidence of independent design usually comes from the relevant designer, who says what he or she did. To move that evidence towards the compelling end of the spectrum, where this is needed, generally speaking it must (a) point to one or more designs available to the independent designer at the date of alleged copying, other than the claimant's or anything derived from it, which could plausibly have been the source of relevant design inspiration and/or (b) establish that the designer did not have access to any image of the design which, according to the claimant, was directly copied."
    In Kaldor the judge accepted the defendant's explanation for the similarity between the original and the putative copy. In Bodo Sperlien he did not.

    To His Honour's eye, the similarities between Bodo Sperlein's Red Berry design and Sabichi's Red Blossom were very striking indeed. Sabichi's desgner identified several differences such as the smooth twig of the Red Blossom design as opposed to the more realistic and detailed appearance of the Red Berry design, the number of berries, the precise placing and shape of the twigs and berries, and so on, but even she conceded in her witness statement that the Court might look at those designs and have difficulty telling them apart. One telling ground for an inference of copying was the colour used in the Red Blossom collection. The judge found it almost inconceivable that Sabichi's design should employ exactly the same shade of red as that of the Red Berry design unless either the latter was copied or alternatively there was a very convincing explanation for the coincidence. 

    Even though Sabichi's designer had no recollection  of copying and the judge accepted that she had tried to give her evidence accurately he did not think that she had discharged the burden of explaining away the similarities. At paragraph [48] he said:
    "I accept that she has no recollection of being influenced by the Red Berry design, but the possibility cannot be excluded that she has forgotten such influence or successfully put it out of her mind."
    His Honour was particularly impressed by the similarities in colour and the only reasonable explaation for such similarities was copying. He concluded at paragraph [51] that Sabichi infringed Dodo's copyright by the importation into the UK of Blossom ceramics and the sale of those products in this country.

    In my case note on Kaldor I wrote that that Kaldor would have won had it registered its fabric design as a registered design or as a registered Community resign. As there is no examination design registration is a relatively cheap and easy exercise. It is true that Bodo won without registering its design but it might have won more easily had the Red Berry design been registered.

    The other notable thing that happened in this case was that the judge conducted a summary account of profits immediately after determining liability. Usually liability and the appropriate pecuniary remedy are decided in separate sessions many months apart for largely historical reasons in the Chancery Division. In this case the parties filed pleadings and evidence in relation to an account of profits which allowed Judge Hacon to proceed with the account immediately after determining liability. In OOO Abbott and Another v Design & Display Ltd and Another [2014] EWHC 2924 (IPEC) (4 Sept 2014)  His Honour had attempted to summarize (at [38] to [40]) the law on the costs which may be deducted from gross profits when assessing the appropriate profits payable by a defendant in an accountL
    "[38] … (1) Costs associated solely with the defendant's acts of infringement are to be distinguished from general overheads which supported both the infringing business and the defendant's other businesses.
    (2) The defendant is entitled to deduct the former costs from gross profits.
    (3) A proportion of the general overheads may only be deducted from gross profits in two circumstances:
    (a) if an overhead was increased by the acts of infringement (i.e. the increase would not have occurred but for the acts of infringement), that increase may be deducted;
    (b) if the defendant was running to maximum capacity such that the infringing business displaced an alternative business which otherwise would have been conducted, the apportioned overheads incurred by the infringing business (and which would have been incurred by the displaced business) may be deducted.
    (4) The evidential burden is on the defendant to establish any of the above.
    [39] The logic of the principle which I have numbered (3)(b) (adopted from the judgment of the High Court of Australia in Dart Industries Inc v Decor Corp Pty Ltd [1994] FSR 567) is that while a defendant may not deduct the profit that it would have made from the displaced business (i.e. the loss of profit from an opportunity forgone, called the 'opportunity cost') it would be unfair to deprive the defendant of both the opportunity cost and the apportioned overheads which would have sustained the displaced business (and which sustained the infringing business).
    [40] The corollary of (3) as a whole is that if the overheads would have been incurred anyway in the absence of the infringing business and also no opportunity cost was incurred by the defendant, no overheads may be deducted from its gross profits."
    The evidence of costs and allowable deductions was largely agreed so the judge was able to make an award straight away.

    Should anyone wish to discuss this case or copyright and designs law in general he or she should call me on 020 7404 5252 or use my contact form.

    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.