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Justifying opening the flood gates

The High Court (Patents Court) has recently upheld a decision of the Intellectual Property Enterprise Court (IPEC) that: (1) threats made prior to the grant of a patent were capable of justification, pursuant to section 70 (2A) of the Patents Act 1977 (PA) and; (2) trial on the issue as to whether the threats were groundless was to be delayed until grant of the patent.

In the recent case of Global Flood Defence Systems Limited & Anor v Johan Van Den Noort Beheer BV, the High Court (Patents Court) has recently upheld a decision of the Intellectual Property Enterprise Court (IPEC) that: (1) threats made prior to the grant of a patent were capable of justification, pursuant to section 70 (2A) of the Patents Act 1977 (PA) and; (2) trial on the issue as to whether the threats were groundless was to be delayed until grant of the patent.

Background and procedural history

In May 2008 Johan Van Den Noort Beheer BV (BV) filed a patent application (the Application) for a self-closing flood barrier (SCFB). In November 2011 BV entered into an exclusive licence agreement with Global Flood Defence Systems Limited (Global Flood), under which Global Flood was exclusively licensed (under the Application) to make and distribute the SCFB. Unfortunately, the parties' commercial relationship broke down and the exclusive licence agreement was terminated in around January/February 2014. Global Flood then began selling an alternative product called the self-activating flood barrier.

In February and March 2014 BV made various threats of patent infringement proceedings to Global Flood. As a result of these threats Global Flood commenced proceedings for groundless threats in the IPEC and applied for summary judgment in October 2014 on the basis that, as a matter of law, the threats could not be justified because they were threats of proceedings for infringement of a granted patent but the application for the SCFB had not yet been granted.

The IPEC dismissed Global Flood's application for summary judgment but granted Global Flood permission to appeal its finding. The IPEC also, at a case management conference following the handing down of its decision on summary judgment, fixed the trial dates of 8th and 9th December 2015 for the threats claim. As Global Flood did not believe the Application would be granted prior to the trial it decided not to pursue the appeal of its summary judgment application.

On 19 November 2015 the European Patent Office (EPO) issued a decision to grant the Application. This meant that the form of the patent's claims in the Application was fixed and it would be granted on 16 December 2015.

At the start of trial on 8 December 2015 BV applied to adjourn the trial on the issue of whether the threats were groundless. The Judge in the IPEC acceded to this application and refused to grant permission to Global Flood to appeal its finding on the adjournment.

Global Flood subsequently appealed to the High Court for permission to: (1) extend the time to file its appellant's notice concerning the dismissal of its summary judgment application; and (2) the IPEC's finding of an adjournment.

The High Court granted Global Flood an extension of time to file its appellant's notice and permission to appeal the IPEC's finding on the adjournment. The parties subsequently agreed to stay the threats claim until the appeals had been determined.

Relevant provision

This case concerned the construction of section 70 (2A) PA. This provides a defence of justification (subject to questions of validity) where the defendant proves that "the acts in respect of which proceedings were threatened constitute, or if done, would constitute an infringement of a patent."

Decision

The first appeal: were the threats capable of being justified?

Global Flood argued that on proper construction of section 70 PA, a threat of proceedings for infringement of a granted patent made at a time when the person making the threat only has a pending patent application was not capable of justification under section 70 (2A) PA.  BV argued that the IPEC Judge rightly rejected this argument.

The High Court agreed with the IPEC's finding that the threats made by BV were capable of being justified under section 70 (2A) PA for the following reasons:

  1. Courts should be slow to conclude that section 70 PA makes a class of threats incapable of justification in the absence of clear wording because: it creates a tort of strict liability which does not require actual proof; it acts as a restraint upon commercial free speech; and represents an obstacle to the negotiation and settlement of patent disputes.
  1. Section 70 PA is aimed at dealing with the damage caused to a manufacturer or importer of goods by threats of patent infringement directed at its customers. However, section 70 (2A) PA makes it lawful to make such threats when it is justified.
  1. Section 70 (2A) PA requires the court to consider whether the acts in respect of which proceedings were threatened constitute an infringement, not whether the terms of the threat were justified.
  1. Based on the above reasons, the availability of the defence of justification should not depend on the precise manner in which the threat was couched and in particular, whether the author of the threat took sufficient care to distinguish between the rights presently conferred by a granted patent and the contingent rights conferred by a patent application if and when it proceeded to grant.
  1. The Court agreed with the Defendants interpretation of section 70 (2A) PA. Namely, it only required that the particular acts complained of in the threat were shown to constitute an infringement of a patent.
  1. The most powerful points made by Global Flood were the need for certainty and the difficulty that would arise if the patent is not granted by the date of trial. However, the force of these points should not be overstated. Where a person who makes a threat seeks to justify it there may need to be a trial of issues of infringement and/or validity. If there is an appeal the uncertainty will extend until a decision from the Court of Appeal. Further if the patent in question is a European patent application, it may be subject to opposition proceedings in the EPO which can last for many years. Thus the additional potential uncertainty if grant of the patent is still awaited at the date of the threat may be undesirable, but it does not greatly alter the position.

The second appeal: was the Judge right to adjourn the trial?

The High Court found that the IPEC's decision to adjourn the December trial on the issue of threats was a case management decision. As a result, Global Flood had to show that the Judge had erred in principle in exercising his discretion for the appeal to succeed.

The High Court found that there was no error in principle made by the IPEC Judge in exercising his discretion since the grant of the patent was imminent an adjournment was justified.  The alternative being that Global Flood would win the threats claim by default despite BV shortly being in a position to justify the threats would be undesirable.

Comment

This decision is a useful reminder that clients should be advised of the consequences of threatening potential infringers with infringement proceedings; if they are not careful they may find themselves at the end of a groundless threats action. The importance of warning clients of these consequences is further exemplified by the recent IPEC decision in SDL Hair Ltd v Next Row Ltd & Others where on an inquiry as to damages, the IPEC ordered £40,500 to be paid following a finding of groundless threats of patent infringement.

The High Court's finding that the defence of justification should not depend on the precise manner in which the threat was expressed shows that the courts are prepared to take a pragmatic approach to the availability of the justification defence. This is important as the High Court recognised that threats tend to be made by people who are not lawyers and often from a jurisdiction that does not have a law preventing groundless threats.     

Finally, the High Court's comments on delaying trial until the grant of the patent if an interim injunction is in place are of great interest. Following Brain v Ingledew Brown Bennison & Garrett (No 2) [1997] FSR 271 it was thought that if a threat was made in respect of a patent that had not been granted and the patent was not granted by the time of trial the party making the threat would not be able to run the justification defence under section 70 (2A) PA (as the patent was not granted), unless a short stay of proceedings was granted owing to the imminent grant of the patent. However, in this case the High Court opined that if an interim injunction was granted restraining a defendant making further threats pending trial there would be no prejudice by delaying the trial of the issue of justification until the patent is granted. The High Court further commented that although the claimant would have to give a cross-undertaking in damages, and it may be undesirable to be exposed to the same for an open ended period, in most cases it would be difficult to see what loss the defendant would sustain through being wrongly restrained from making threats because the threats turn out to be justified.

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