Damages inquiry: the tail-end of a long-running dispute

Authors: Paul Joseph and Ben Mark (RPC, London)

Fabio Perini S.P.A v (1) LPC Group Plc (2) Paper Converting Machine Company Italia (3) Paper Converting Machine Company Limited (4) LPC (UK) Limited [2012] EWHC 911 (Ch), Patents Court, England and Wales, 4 April 2012

Journal of Intellectual Property Law & Practice (2012) doi: 10.1093/jiplp/jps101, first published online: July 23, 2012

Intellectual property cases in England and Wales are tried on a split trial basis. The court first deals with liability and, depending on the outcome, a second action is then commenced to assess the level of damages that should be awarded. The High Court has recently assessed the level of damages in a patent infringement action (following the initial trial and subsequent appeal on liability). It is unusual for a damages inquiry to reach the formal court stage, as parties usually settle the level of damages following the trial on liability. This case therefore provides rare guidance on the application of the applicable principles, although it should be borne in mind that inquiries of this nature are fact specific. The decision also raises interesting patent issues and deals with wider principles such as reliability of evidence.

Legal context

The basic principles underlying the assessment of damages in patent cases derive from a relatively small number of cases over the past 100 years or so. The principles can be summarized as follows:

  • The patentee should be restored to the position he would have occupied if the infringer had not acted improperly provided always that the loss is foreseeable, caused by the wrong and is not excluded on public policy grounds (General Tire & Rubber Co v Firestone Tyre & Rubber Co Ltd [1976] RPC 197).
  • The patentee must adduce evidence to show that it is probable that, if it were not for the infringer's act, the loss for which the patentee seeks compensation would not have occurred.
  • The court recognizes and then values the loss of the chance by the patentee to make sales itself.
  • The assessment requires the court to construct and value hypotheses. It requires the court to form a view as to what might have happened absent the infringement. In this context, as Mr Justice Norris put it, ‘one cannot expect much in the way of accuracy’.
  • In certain circumstances it may be possible for the patentee to recover damages in the form of lost profits not only on the sale of the patented product but also those goods commonly sold together with the patented product (Gerber Garment Technology v Lectra Systems [1997] RPC 443).
  • Ultimately, the task of the court is to compensate the patentee and not to punish the infringer.

Facts

In 2009 Mr Justice Floyd held that PCMC, a major competitor of Perini in the paper converting industry, was jointly liable with LPC (a customer of PCMC) for infringing Perini's '929 patent (a method for gluing the loose end or ‘tail’ of rolls of paper) by the use of the PCMC ‘tailsealer’. A ‘tailsealer’ forms part of a line of machinery known as a ‘converting line’ which converts an industrial roll of paper into smaller rolls of kitchen and toilet tissue.

Following an unsuccessful appeal by PCMC/LPC to the Court of Appeal, the inquiry as to damages (first ordered by Mr Justice Floyd in 2009), came to be determined by Mr Justice Norris in October 2011.

Analysis

While the judge's findings as to the level of damages are largely fact-specific, the following points of general interest arise from the court's judgment:

Res judicata

Res judicata (a Latin term for ‘a matter already judged’) is an English legal doctrine which prevents a matter from being raised in the same or a different court after it has already been determined. In this case, despite the fact that relevant new documents had come to light, Perini's argument that PCMC had infringed the '929 patent by supplying the infringing tailsealers in the UK was rejected on the basis that the issue had been determined in the main proceedings with the benefit of the supply contracts. The judge held that it would have been an abuse of process to advance the supply argument in the inquiry.

Strength of evidence

The judge commented on the artificial nature of the damages evidence, which was isolated from contemporaneous decisions (dating back over six years ago). Evidence of this type needed to viewed with caution.

Establishing a causal link

Perini, the patentee, had to demonstrate that the infringing act of PCMC/LPC had resulted in the loss of a contract to supply the relevant third party customers, namely LPC and Georgia Pacific (or the chance to supply) with its tailsealer product, which embodied the patented process. In assessing whether any such causal link had been established, the judge made the following observations:

  • Where the infringing act relates to the use of a process, a patentee is not excluded, in principle, from claiming for loss of a contract to the extent that the infringing process is specifically written into the supply contract of the infringing apparatus, the premise being that such promotion of the infringing use could cause the patentee to lose a contract employing its patented method.
  • No distinction in principle can be drawn between the infringement of a process patent as contrasted with a product patent. PCMC/LPC had argued that, where a customer is paying to achieve a result (ie, a glued paper roll), he may not care how that result was achieved (in effect saying that there was no causal link), whereas with a product, this was different as the customer would have specifically wanted that product. The judge dismissed this argument on the basis that in either case the infringer would still be seeking a competitive advantage and so there was a causal link sufficient to ground the damages claim.

Total damages

The amount of damages awarded to Perini was quite substantial given that (according to PCMC/LPC) the infringing tailsealer accounted for only six per cent of the total cost of the entire converting line. Based upon the evidence before the judge, Perini had successfully argued that it had lost the chance of a sale of the whole converting line (in which the tailsealer was one module) and not just the tailsealer itself.

Practical significance

While there is a body of case law setting out the general principles governing an assessment of damages, it is evident that there is still a great deal of uncertainty surrounding the accuracy of any final determination. This is certainly true in this case, where the witnesses are forced to recall and hypothesise about events that took place many years ago. It is likely that this is one of the main reasons why most assessments settle before reaching trial—if parties want certainty, settlement is the only option.

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