Author: Andrew Moir and Grace Pead (Herbert Smith Freehills LLP, London, UK)
Adaptive Spectrum and Signal Alignment Inc v British Telecommunications Plc  EWHC 4447 (Pat), 19 December 2014
Journal of Intellectual Property Law & Practice (2015) doi: 10.1093/jiplp/jpv103, first published online: June 4, 2015
Following an earlier finding that British Telecommunications (‘BT’) infringed two patents owned by Adaptive Spectrum and Signal Alignment (‘Adaptive’), Birss J in the High Court (Patents Court) has ordered Adaptive to provide BT with a list of licences and other agreements with Sky (Adaptive's sole UK licensee) in order for BT to understand the likely amount of damages it would have to pay in an inquiry as to damages, even though the inquiry had not yet begun.
It is well established in English law that, in negligence and contractual claims for example, a court can order disclosure related to quantum of damages before proceedings start (XL London Market Ltd v Zenith Syndicate Management Ltd  EWHC 1182; Birse Construction v HLC Engenharia e Gestao de Projectos SA  EWHC 1258; and Briggs & Forrester v Governors of Southfield School for Girls  EWHC 1734) (Civil Procedure Rules (CPR), r 31.16). And, in general, it is open to a court to make any disclosure orders it considers appropriate at any case management conference in a proceeding, having regard to the overriding objective, including proportionate costs, and the need to limit disclosure to what is necessary to deal with the case justly (CPR, r 31.5(7)(f)). However, it is not as clear from precedent whether, and in what circumstances, a court should order disclosure on quantum before the damages inquiry begins in an intellectual property proceeding where liability and quantum are split. This judgment in the on-going patent proceedings between British Telecommunications (‘BT’) and Adaptive Spectrum and Signal Alignment (‘Adaptive’) provides litigants with some useful guidance on this commercially significant issue.
In a series of earlier judgments, infrastructure within BT's Next Generation Access system (BT's VDSL2 fibre broadband network) was found to infringe two Adaptive patents relating to dynamic line management and line profile control ( EWCA Civ 1462; and  EWHC 4194). The day after the latest judgment on liability, BT sought disclosure from Adaptive of licences and other agreements to facilitate BT's understanding of the damages it would have to pay.
BT submitted that it was appropriate for the court to order disclosure before the damages inquiry had begun because the disclosure would facilitate settlement discussions. Early disclosure would also assist BT in formulating a reasonable settlement offer under Part 36 of the CPR. BT pointed out that it bore the onus of making a settlement offer early, given that under Part 36, if Adaptive recovered any sum on the damages inquiry, BT would be liable for Adaptive's costs incurred prior to BT making a settlement offer.
Adaptive's position was that the disclosure orders would cause Adaptive considerable difficulty, particularly in the timetable proposed by BT. Adaptive filed evidence that the disclosure sought would require it to produce highly confidential contracts, which would require detailed review and consideration, and associated costs. Adaptive also contended that it is a consultancy and software company, and its relationship with Sky involves more aspects than patent licences; it involves consultancy services and the supply of software.
According to Birss J, it is plain that the court has jurisdiction to order disclosure relating to quantum at any stage of a patent case of this kind. The court can, and will, order disclosure at an earlier stage than usual if to do so appears to be just and in accordance with the overriding objective of enabling the court to deal with cases justly and at proportionate cost. Here, BT was granted early disclosure, as the disclosure was likely to promote settlement, allow the parties to be on equal footing in any negotiations and allow them to gauge the value of the case. The documents that BT sought would be disclosable at some point in the proceeding, the only question was when.
On the facts of this case, there was one particular element that led Birss J to order early disclosure: Adaptive had said in a press release that it would ‘now proceed with its claim for damages, which it believes will amount to many millions of pounds’ ( EWHC 4447 (Pat) ). For this reason, Birss J held that justice demanded that BT be entitled to early disclosure to assess whether Adaptive's publically stated valuation was correct and the likely scale of damages.
In considering the appropriate form of the orders, Birss J emphasized the need for the disclosure to be proportionate and the timetable to be realistic. Birss J agreed with Adaptive that the disclosure orders sought would be difficult for Adaptive to satisfy, in terms of the work required and the timing. It was not necessary, as BT had sought, for Adaptive to disclose its licences with other customers at this stage or to produce a list of documents within five days of the hearing. However, it was appropriate at this stage for Adaptive to list its licences with Sky, its sole UK licensee, and for the parties to discuss a reasonable timeframe for that. Birss J left the parties to agree a confidentiality regime.
Following this judgment, parties who have, or are alleged to have, infringed patents and other intellectual property may be able to obtain disclosure going to quantum from rights holders before a damages inquiry begins. Obtaining early disclosure can be an important step for the infringing party meaningfully to engage in settlement discussions and to minimize its liability for the rights holder's costs of the litigation. Early disclosure will allow the infringing party to make a timely, informed settlement offer under CPR Part 36, reducing the period of time prior to the offer, for which the infringing party will be liable for the rights holder's costs if the rights holder goes on to recover any damages by way of court order.
Rights holders claiming damages in an infringement action should be conscious that they could have to disclose commercially sensitive documents related to quantum while the liability phase of proceedings is still ongoing. When involved in a dispute, rights holders should weigh up any disclosure risks associated with making public statements, no matter how vague, regarding the quantum of damages they believe is due. Such statements may be a principal factor in a court making an early discovery order so that the infringing party can assess the accuracy of the statements.