Remedies: Account of profits; revocation after settlement; right to continue prior use

United Kingdom

Account of profits: not a good idea!

In Celanese International Corporation v BP Chemicals Limited BP had been found to infringe a patent for “guard beds” for removing impurities from acetic acid. The plaintiffs elected for an account of profits as opposed to an enquiry as to damages. The plaintiffs claimed £118 million profit; the defendants offered some £4 million.

The Court held that in order for an account of profits to be granted there had to be profits from the use of the process. The process had been applied in two plants. One plant had never made a profit. As a result there was no profit on which an account could be taken to be paid to the plaintiffs.

As to the second plant, the Judge decided what proportion of the profits of the plant should be attributed to the acts of infringement. The value of the guard bed represented 0.6% of the total value of the equipment used in the process. Accordingly, the correct apportionment was 0.6% of the total profits; and from that profit Corporation Tax paid by BP should be deducted.

As a result, the damages awarded were a few hundred thousand pounds, far less than either party had expected.

The case has not gone to appeal. It has been settled! The terms are apparently confidential, but it seems likely that Celanase will have been paid something well over the £4 million that BP were originally arguing for!

Court can revoke a patent following settlement of litigation.

In SmithKline Beecham Biologicals S.A. v Connaught Laboratories Inc. SmithKline lodged a petition to revoke Connaught’s patent on grounds including anticipation, obviousness and insufficiency. (There were also proceedings commenced by Connaught in the USA, Belgium and Holland; and opposition proceedings against the patent in the EPO; and proceedings before the Japanese Patent Office).

Immediately before the trial was due to start, the action was settled. Connaught said that they would not be defending the action and would apply to the Comptroller to surrender the patent.

The question was raised as to whether the proper course was to allow Connaught to apply to the Comptroller to surrender the patent or whether the Court should be invited to revoke it. In particular, SmithKline wanted a certificate that their Particulars of Objection were reasonable and proper, to facilitate their recovery of costs on taxation.

Revocation was only possible if the proceedings were still live. But there were disadvantages in allowing Connaught to apply to the Comptroller to surrender. The application would take time and involve advertisement and additional cost. The patent would remain alive until the Comptroller allowed surrender which was unsatisfactory in the light of the continuing application in Holland to enforce the British patent.

The judge took the view previously adopted by his brethren in stating that the offer to settle made by the patentee was not yet effected. The patent was still in existence. The date for the commencement of the trial had arrived and the application for revocation had not been withdrawn so it was open to him to revoke the patent.

The judge having read a large quantity of material, had come to the conclusion that in the absence of any resistance from the Respondent the petition was well founded, and he revoked the patent.

Splitting of issues at trial; and striking out of Treaty of Rome defences.

In Phillips Electronic v Ingman the Defendant in patent infringement proceedings raised conventional arguments on the validity of the patent and also argued that there were breaches of both Articles 85 and 86 of the Treaty of Rome (Agreement likely to affect trade between Member States; and abuse of a dominant position). The question arose as to whether or not the patent and the Treaty points should be heard separately; and to what extent the arguments under the Treaty should be struck out.

The Judge pointed out that the Court has a wide discretion to split the issues in an action and to order them to be tried separately. The Judge also considered that the patent law and Treaty of Rome issues were quite distinct; as was particularly evidenced by the fact that different specialist counsel had been retained for each of those two areas. The Judge also pointed out that the patent part of the litigation could probably be heard quickly; and that if the Defendants succeeded in that part of their argument there would be no need for the Treaty of Rome points to be considered at all. He therefore ordered the two parts to be heard separately.

He also considered the question as to whether or not the applications by the Plaintiff to strike out the attacks raised under Articles 85 and 86 of the Treaty of Rome would succeed.

In summary, the Judge took the view that the Defences based on Article 86 were bound to fail, regardless of whether or not the Plaintiff held a dominant position in the market. In particular, the Judge pointed out that the Patentee was entitled to decide whether or not to grant a licence under its patent (subject to not offering such a licence on abusive terms), and since a number of similar licences had already been accepted there could be no question of abuse.

In considering the Article 85 arguments, one major objection was that the royalty rate was alleged to be too high or discriminatory or both. However, given that there were a number of licences already accepted on identical terms, the Judge thought that it was unlikely that such a defence would succeed. However, the judge was not prepared to strike out the pleading relating to unfair royalty rates under Article 85. The other pleas were struck out. The Court also held that all those pleas should be stayed pending the outcome of the Defendant’s complaint to the Commission.

Forum Shopping - the English Court approves it!

In Demel v C&H Jefferson & Anor the Plaintiff, Demel, brought a patent threats action against the Second Defendant, Mr Logan, the inventor of the patents in suit and the First Defendants, C&H Jefferson. Logan had previously sued Demel for infringement of the patents in Northern Ireland and had advertised proposed amendments to one of the patents so as to excise alleged added subject matter. He had obtained jurisdiction in Northern Ireland against Demel, who is domiciled in Germany, by bringing proceedings against one of Demel’s customers in Northern Ireland, Gilliland, who had sold only £8 worth of goods.

In the English proceedings Logan sought to amend the patent in the same terms as the advertised amendment in Northern Ireland. Demel objected to the granting of leave. One of the grounds was that, by suing the supplier in Northern Ireland, Logan had committed mis-conduct in his role as patentee. It was suggested that commencing proceedings in Northern Ireland was tactical and designed to steal jurisdiction from the Patents Court in England.

The Judge was trenchant in his criticism saying “I fail to see how the latter point can have anything to do with the issue of amendment. Choosing forum is not a crime. It is a normal incident of multi-jurisdiction litigation... in my view there was nothing improper in his attempt to do so.”

Local law decides whether a partnership is a legal entity

In DiscoVision Associates v Disctronics (UK) Limited the Plaintiff was a general partnership under California law. The partners in that partnership changed; and the Defendants argued that as this was never registered there should be a restriction on damages recoverable by virtue of Section 68 Patents Act 1977 (which provides that a proprietor of a patent cannot claim damages or an account of profits for infringement before he registers this interest under the patent at the UK Patent Office, unless he registers his interest within 6 months of acquiring it). The Court held that the question of whether or not a partnership is a corporation for the purposes of the relevant rule is to be decided according to the law of the country in which it is formed, notwithstanding that they may be corporations of a type which would not be recognised by English law and which have no parallel in English law. The Court held that under California law the partnership could hold the patent independently of its partners for the time being and was to that extent to be recognised as a corporation. Accordingly, there has been no transaction or event affecting the partnership’s title, and the defence under Section 68 must fail.

Rights to continue prior use difficult to satisfy

In Lubrizol Corporation v Esso Petroleum Co Ltd & Ors (Court of Appeal) the case related to patent litigation, the point of particular interest being the right to continue a prior use given under Section 64, Patents Act. (The case also decided that the supply of samples in confidence for tests was prior use under Section 32(1)(e) Patents Act 1949 although the point is now probably irrelevant in the light of the requirement to make an invention available to the public under the 1977 Act.)

Section 64 provides that “a person who in the United Kingdom before the priority date of the invention does in good faith an act which would constitute an infringement of the patent if it were in force, or makes in good faith effective and serious preparations to do such an act, shall have the [right to continue to do that act]”.

Questions arose as to the extent of the right which would be granted and the meaning of the phrase “effective and serious preparations”.

In a previous case, Helitune Limited v Stewart Hughes Limited, Aldous J (as he then was) had suggested that Section 64 gave “a statutory licence” and that, provided a person had carried out an infringing act before the priority date, he can continue to carry out that act even though the product or process may be different to some degree”.

In Lubrizol Corporation v Esso Petroleum Co Ltd, Mr Hugh Laddie QC commented “I have some doubts...as to whether Helitune is correct. The act which the alleged infringer is entitled to continue to conduct by virtue of Section 64(2) is the act which he was committing before the priority date...I have difficulty in accepting that by, for example manufacturing product A before the priority date, he was thereby given a right to manufacture any product after the priority date. In my view, section 64 is intended to safeguard the existing commercial activity of a person in the United Kingdom which is overtaken by the subsequent grant of a patent. It is not meant to be a charter allowing him to expand into other products and other processes”.

Aldous LJ stated that “the words used by me in Helitune have been read in a way not intended. Clearly, the right given by Section 64 cannot be a right to manufacture any product nor a right to expand into other products. However, I do not believe that identicality is required. I believe that the Judge was right in [Lubrizol v Esso Petroleum] when he said:

‘If the protected act has to be exactly the same (whatever that may mean) as the prior act then the protection given by the Section would be illusory. The Section is intended to give practical protection to enable a man to continue doing what in substance he was doing before.’

The question as to whether or not Exxon had made “effective and serious preparations” was then considered. Aldous LJ said “The word “effective” qualifies the word “preparations”. It follows that there must be something more than preparations to do an infringing act “...in all cases the preparations must be so advanced as to be about to result in the infringing act being done.” He took the view that, at the priority date of the patent, management had not started to manufacture and interim site approval had not been granted (nothing effective had been done at all); and the defence failed. The remainder of the Court of Appeal agreed with Aldous LJ’s views.