Decision to grant pre-action disclosure of patent licences opens the door for a new tacticThe High Court has granted an "unprecedented" application for pre-action disclosure of patent licences in the
Decision to grant pre-action disclosure of patent licences opens the door for a new tactic
The High Court has granted an "unprecedented" application for pre-action disclosure of patent licences in the recent case of The Big Bus Company Ltd v Ticketogo Ltd. The Big Bus Company Limited ("Big Bus") sought pre-action disclosure after Ticketogo Limited ("Ticketogo") asserted that Big Bus required a licence for an online ticketing system they used. Big Bus argued that pre-action disclosure of Ticketogo's licences was necessary to make an informed decision as to whether to agree a licence or whether to continue to resist Ticketogo's assertion, which would likely lead to costly litigation.
The court allowed the application, recognising that a lack of information about comparative licences prevented price transparency in the patent licensing market and could be a major obstacle to avoiding litigation.
Background
Ticketogo is the proprietor of a patent for a method of issuing a ticket containing a barcode image online and according to the evidence, Ticketogo did not conduct any business other than patent licensing (otherwise known as a "non-practising entity"). Big Bus operates open-top bus sightseeing tours.
In extensive correspondence starting in October 2012, solicitors acting for Ticketogo notified Big Bus of the existence of Ticketogo's patent and stated that they believed Big Bus required a licence of this patent in order to use their current ticketing system. In response, Big Bus claimed that their ticketing system did not fall within the claims of Ticketogo's patent. Ticketogo replied by warning of the high costs involved in challenging the validity of patents and invited Big Bus to review the current list of licensees of the patent on the UK IPO's website and to re-consider taking a licence itself. Big Bus eventually made an application for pre-action disclosure under CPR rule 31.16, seeking an order for disclosure and inspection of all licences granted by Ticketogo under the patent in question.
The principles under CPR rule 31.16
The court considered the well-established two stage approach for assessing an application for pre-action disclosure as set out in CPR rule 31.16.
The first stage was to consider whether the jurisdictional tests as prescribed by this rule were satisfied (i.e. whether the applicant and respondent of the application were likely to be a party in subsequent proceedings (31.16 (3)(a) and (b); whether, if proceedings had started, the respondent's duty by way of standard disclosure extended to the documents the subject of the application (31.16 (3)(c); and whether disclosure before proceedings was desirable to dispose of anticipated proceedings, avert proceedings or save costs (31.16 (3) (d)).
If the above tests were satisfied, the second stage was to consider whether, as a matter of discretion, an order should be made.
Likelihood of being a party
In relation to CPR 31.16 (3)(a) and (b), the court found that if there were proceedings for infringement of the patent, then clearly both Big Bus and Ticketogo would be parties to those proceedings.
Standard Disclosure where a split trial is likely
Of less certainty was whether the test under CPR 31.16 (3)(c) was satisfied. Often a patent dispute such as this would be dealt with as a split trial if it proceeded to litigation. As the first stage only deals with the question of liability, disclosure at this stage only relates to documents relevant to liability. Only if liability is found and the case progresses to quantum would quantum disclosure come into play. The question then is what should be disclosed pre-action if a hypothetical future trial would most likely be split?
Counsel for Big Bus asserted that the duty of standard disclosure related to the proceedings as a whole, not just the liability stage in the event of a split trial. Further, given Ticketogo exploited its patent by licensing, the correct approach to quantifying damages for infringing that patent would be to consider comparable licences granted to other parties.
Ticketogo's legal team countered that if Ticketogo was unsuccessful on liability in a hypothetical future split trial, then there would be no proceedings to determine quantum and therefore the question of disclosing documents relating to quantum would never arise.
Ticketogo also argued that even if they were successful on liability, they might elect for an account of Big Bus' profits rather than damages amounting to what Big Bus would have paid Ticketogo based on licence fees. In that event the licence agreements would not be relevant to determining quantum. Finally Ticketogo contended that although pre-action disclosure relevant to the whole proceedings might be the correct approach in some cases, it was not applicable to intellectual property cases such as the one at hand.
The court considered that even though a split trial would be the likely format, it was not inevitable. Further, the fact that a court will normally elect staged disclosure did not undermine the fact that, in principle, the duty of standard disclosure includes documents relating to quantum. Additionally the court found it was "irrelevant" that hypothetically Ticketogo might elect for an account of profits. It was more likely that Ticketogo would elect for an inquiry as to damages than an account of profits, since with the latter option it would have the additional burden of demonstrating that the use of the patented system was the cause of Big Bus' profits.
The desirability of pre-action disclosure
Counsel for Big Bus submitted that disclosure was desirable for all three reasons listed in sub-rule 3(d), but particularly the second and third reasons. The court agreed with the observation that too often parties to intellectual property disputes spent disproportionately large sums of money litigating liability issues compared to the quantum of the claim.
The court found that sub-rule 3(d) was satisfied and referred to previous case law demonstrating that the courts have recognised for some time the desirability of some disclosure as to quantum being given at an early stage. The court further explained that what has been previously resisted is the expense of full disclosure of quantum documents before liability is established in cases where a split trial is likely.
Discretion
Ticketogo's solicitor argued that the court should exercise its discretion by refusing disclosure because Big Bus could decide on its own the commercial value of the licence as all licensees had done. Additionally, Ticketogo submitted that forcing it to disclose its licensing agreements with other parties would hamper its negotiating position. It claimed it would also be time-consuming and costly for Ticketogo to seek third parties' consent to inspection.
The court rejected Ticketogo's first argument saying that the third parties could have made similar applications to the one made by Big Bus. The court also dismissed the argument that disclosure should not be made as it would hinder Ticketogo's ability to negotiate licences individually to maximise licence income. The court stated "transparency is a virtue" and "availability of price information is one of the key requirements for the proper functioning of any market". It asked "Why should Big Bus be obliged, if it does not wish to litigate, to accept whatever royalty rate Ticketogo now sees fit to offer it, if a court would award less by way of damages?"
The court did not accept that it would be time-consuming and costly to seek third parties' consent to inspection of the licences. A simple standard form letter would suffice with an invitation to inform Big Bus' solicitors of any objections which could then be addressed by them via a confidentiality club.
Final Decision
The jurisdictional tests in CPR rule 31.16(3) were satisfied in relation to licences granted to transport sector licensees and the court's discretion should be exercised to order pre-action disclosure of such licences. Other licences requested should not be disclosed.
Comment
Non-practising entities like Ticketogo have long been able to exert a fair amount of pressure on parties they claim infringe their patents. It is a known tactic to sign up some licensees for a low or nominal but confidential consideration (which many may accept rather than engage in the costs and uncertainties of litigation), and for a licensor then to exert pressure on other prospective licensees to enter more onerous licence agreements by pointing to the list of existing licensees and asserting that such licensees have acquiesced having concluded that the licensor's case was strong. This decision may now give parties more confidence to try a new strategy if approached by patent-holders in such a manner. Although they ultimately still have the choice of accepting a licence or pursuing litigation, a successful pre-action disclosure application will allow them to make a more informed choice with a better idea of the value of a patent-holder's claim. If after disclosure they choose to accept a licence, they will have a better awareness of the prices agreed by other parties.
It will be interesting to see if this decision leads to an increase in suspected infringers seeking orders for pre-action disclosure which in turn could result in the blunting of a negotiation tactic and delays for non-practising entities like Ticketogo trying to secure new licences. They may also be forced to accept lower licence fees than they would have previously negotiated.
The High Court has granted an "unprecedented" application for pre-action disclosure of patent licences in the recent case of The Big Bus Company Ltd v Ticketogo Ltd. The Big Bus Company Limited ("Big Bus") sought pre-action disclosure after Ticketogo Limited ("Ticketogo") asserted that Big Bus required a licence for an online ticketing system they used. Big Bus argued that pre-action disclosure of Ticketogo's licences was necessary to make an informed decision as to whether to agree a licence or whether to continue to resist Ticketogo's assertion, which would likely lead to costly litigation.
The court allowed the application, recognising that a lack of information about comparative licences prevented price transparency in the patent licensing market and could be a major obstacle to avoiding litigation.
Background
Ticketogo is the proprietor of a patent for a method of issuing a ticket containing a barcode image online and according to the evidence, Ticketogo did not conduct any business other than patent licensing (otherwise known as a "non-practising entity"). Big Bus operates open-top bus sightseeing tours.
In extensive correspondence starting in October 2012, solicitors acting for Ticketogo notified Big Bus of the existence of Ticketogo's patent and stated that they believed Big Bus required a licence of this patent in order to use their current ticketing system. In response, Big Bus claimed that their ticketing system did not fall within the claims of Ticketogo's patent. Ticketogo replied by warning of the high costs involved in challenging the validity of patents and invited Big Bus to review the current list of licensees of the patent on the UK IPO's website and to re-consider taking a licence itself. Big Bus eventually made an application for pre-action disclosure under CPR rule 31.16, seeking an order for disclosure and inspection of all licences granted by Ticketogo under the patent in question.
The principles under CPR rule 31.16
The court considered the well-established two stage approach for assessing an application for pre-action disclosure as set out in CPR rule 31.16.
The first stage was to consider whether the jurisdictional tests as prescribed by this rule were satisfied (i.e. whether the applicant and respondent of the application were likely to be a party in subsequent proceedings (31.16 (3)(a) and (b); whether, if proceedings had started, the respondent's duty by way of standard disclosure extended to the documents the subject of the application (31.16 (3)(c); and whether disclosure before proceedings was desirable to dispose of anticipated proceedings, avert proceedings or save costs (31.16 (3) (d)).
If the above tests were satisfied, the second stage was to consider whether, as a matter of discretion, an order should be made.
Likelihood of being a party
In relation to CPR 31.16 (3)(a) and (b), the court found that if there were proceedings for infringement of the patent, then clearly both Big Bus and Ticketogo would be parties to those proceedings.
Standard Disclosure where a split trial is likely
Of less certainty was whether the test under CPR 31.16 (3)(c) was satisfied. Often a patent dispute such as this would be dealt with as a split trial if it proceeded to litigation. As the first stage only deals with the question of liability, disclosure at this stage only relates to documents relevant to liability. Only if liability is found and the case progresses to quantum would quantum disclosure come into play. The question then is what should be disclosed pre-action if a hypothetical future trial would most likely be split?
Counsel for Big Bus asserted that the duty of standard disclosure related to the proceedings as a whole, not just the liability stage in the event of a split trial. Further, given Ticketogo exploited its patent by licensing, the correct approach to quantifying damages for infringing that patent would be to consider comparable licences granted to other parties.
Ticketogo's legal team countered that if Ticketogo was unsuccessful on liability in a hypothetical future split trial, then there would be no proceedings to determine quantum and therefore the question of disclosing documents relating to quantum would never arise.
Ticketogo also argued that even if they were successful on liability, they might elect for an account of Big Bus' profits rather than damages amounting to what Big Bus would have paid Ticketogo based on licence fees. In that event the licence agreements would not be relevant to determining quantum. Finally Ticketogo contended that although pre-action disclosure relevant to the whole proceedings might be the correct approach in some cases, it was not applicable to intellectual property cases such as the one at hand.
The court considered that even though a split trial would be the likely format, it was not inevitable. Further, the fact that a court will normally elect staged disclosure did not undermine the fact that, in principle, the duty of standard disclosure includes documents relating to quantum. Additionally the court found it was "irrelevant" that hypothetically Ticketogo might elect for an account of profits. It was more likely that Ticketogo would elect for an inquiry as to damages than an account of profits, since with the latter option it would have the additional burden of demonstrating that the use of the patented system was the cause of Big Bus' profits.
The desirability of pre-action disclosure
Counsel for Big Bus submitted that disclosure was desirable for all three reasons listed in sub-rule 3(d), but particularly the second and third reasons. The court agreed with the observation that too often parties to intellectual property disputes spent disproportionately large sums of money litigating liability issues compared to the quantum of the claim.
The court found that sub-rule 3(d) was satisfied and referred to previous case law demonstrating that the courts have recognised for some time the desirability of some disclosure as to quantum being given at an early stage. The court further explained that what has been previously resisted is the expense of full disclosure of quantum documents before liability is established in cases where a split trial is likely.
Discretion
Ticketogo's solicitor argued that the court should exercise its discretion by refusing disclosure because Big Bus could decide on its own the commercial value of the licence as all licensees had done. Additionally, Ticketogo submitted that forcing it to disclose its licensing agreements with other parties would hamper its negotiating position. It claimed it would also be time-consuming and costly for Ticketogo to seek third parties' consent to inspection.
The court rejected Ticketogo's first argument saying that the third parties could have made similar applications to the one made by Big Bus. The court also dismissed the argument that disclosure should not be made as it would hinder Ticketogo's ability to negotiate licences individually to maximise licence income. The court stated "transparency is a virtue" and "availability of price information is one of the key requirements for the proper functioning of any market". It asked "Why should Big Bus be obliged, if it does not wish to litigate, to accept whatever royalty rate Ticketogo now sees fit to offer it, if a court would award less by way of damages?"
The court did not accept that it would be time-consuming and costly to seek third parties' consent to inspection of the licences. A simple standard form letter would suffice with an invitation to inform Big Bus' solicitors of any objections which could then be addressed by them via a confidentiality club.
Final Decision
The jurisdictional tests in CPR rule 31.16(3) were satisfied in relation to licences granted to transport sector licensees and the court's discretion should be exercised to order pre-action disclosure of such licences. Other licences requested should not be disclosed.
Comment
Non-practising entities like Ticketogo have long been able to exert a fair amount of pressure on parties they claim infringe their patents. It is a known tactic to sign up some licensees for a low or nominal but confidential consideration (which many may accept rather than engage in the costs and uncertainties of litigation), and for a licensor then to exert pressure on other prospective licensees to enter more onerous licence agreements by pointing to the list of existing licensees and asserting that such licensees have acquiesced having concluded that the licensor's case was strong. This decision may now give parties more confidence to try a new strategy if approached by patent-holders in such a manner. Although they ultimately still have the choice of accepting a licence or pursuing litigation, a successful pre-action disclosure application will allow them to make a more informed choice with a better idea of the value of a patent-holder's claim. If after disclosure they choose to accept a licence, they will have a better awareness of the prices agreed by other parties.
It will be interesting to see if this decision leads to an increase in suspected infringers seeking orders for pre-action disclosure which in turn could result in the blunting of a negotiation tactic and delays for non-practising entities like Ticketogo trying to secure new licences. They may also be forced to accept lower licence fees than they would have previously negotiated.