Balancing the weight of patent infringement and damages

Author: Christopher Hayes (Palmyra Chambers, Warrington)

Schenk Rotec GmbH v Universal Balancing Limited [2012] EWHC 1920 (Pat), Patents Court, England and Wales, 12 July 2012

Journal of Intellectual Property Law & Practice (2012) doi: 10.1093/jiplp/jps173, first published online: December 4, 2012

This note looks at the application of the relatively rarely-used defence to patent infringement of prior use and the defence to damages for infringement on the basis that the infringer was not reasonably aware of the existence of the patent.

Legal context

Section 64 of the UK Patents Act provides a defence to patent infringement and also a right to continue performing the same acts where the infringer had, in good faith, begun performance of the infringing acts before the priority date of the patent or that they had made serious and effective preparations to do so by the priority date of the patent.

Section 62(1) of the same Act makes provisions that, where a patent has been infringed, no damages shall be awarded where the infringer can prove that he was not aware, and had no reasonable grounds for supposing that the patent existed. Section 62 adds that merely affixing the word patent or patented or similar to a product is insufficient to provide reasonable grounds unless it is also accompanied by the patent number.

Facts

Schenck was the owner of European Patent (UK) 1 520 161. The patent relates to a balancing machine with a gripper-like device for affixing balancing weights to propeller shafts or rotors and was granted on 12 September 2007 having a priority date of 4 July 2002. Universal Balancing supplied a balancing machine, referred to in the judgment as the Green Machine, to a third party, GKN, in 2001. This machine was built on a Schenck base supplied by GKN. In 2002 a second machine was supplied to GKN from Universal Balance, again built on an old Schenck base; this is referred to as the Blue Machine in the judgment. In about March 2004 Universal Balancing sold its machines under the Name KISS-234, rather than product numbers as it had done previously.

Schenck produced a brochure which was available on its website from around 2003 which referred to ‘patented unbalance correction’ but did not make reference to any patent number. There was no evidence that Universal Balancing had seen the brochure, although ultimately the judge did not consider sight of the brochure relevant. In 2004–2005 Schenck sent a copy of the patent to GKN, but not to Universal Balancing.

In July 2010, a meeting took place between senior officers of both parties. At this meeting, the existence of the patent in suit was raised by Schenck. This was the first indication that Universal Balancing had of the patent. Universal Balancing's evidence was that they did not actively monitor competitors' patents or designs.

Having construed the patent, the judge found that the patent in suit was not anticipated, nor was it obvious. He then turned to infringement. In short, the KISS-234 machine was held to infringe. An important element of the judge's reasoning was the presence of two lower electrodes in the KISS-234 machine which allowed it to act as a gripper-like device to enable the rotor to receive a plurality of weights, which was also a feature of the patent. In contrast, the single lower electrode of the Green Machine would not have acted as a gripper-like device to allow the rotor to receive a plurality of weights, and for this reason the Green Machine would not infringe the patent. Accordingly, the judge turned to the defences under ss 64 and 62.

Analysis

Universal Balancing contended that all of its machines from the Green Machine through to KISS-234 were essentially the same. KISS-234 merely reflected a change in the name of the machine, and there were no fundamental differences between it and the earlier machines. In support of this, Universal Balancing contended that in its opinion there were no patentable differences between the Green Machine and KISS-234. In effect, the sale of the KISS-234 was the same act as that which commenced with the sale of the Green Machine, which was undoubtedly before the priority date. In the alternative, Universal Balancing contended that the sale of the Green Machine represented serious and effective preparations for the sale of KISS-234, so as to engage the defence under this limb as well.

The judge, however, held that the Green Machine did not fall within the claims of the patent and that, therefore, s 64 was not, by definition, engaged. The acts of infringement relate to the manufacture and sale of the KISS-234 machine, so the defence turns on whether the sale of the Green Machine amounts to serious and effective preparations for the sale of the KISS-234 machine.

There was no evidence that Universal Balancing had fitted a second electrode or had contemplated fitting a second electrode to any of the Green Machines it sold before the priority date. The Green Machine did not therefore operate in the same way as the KISS-234 machine; they were different products. As a result, the judge found that the act of making and selling the Green Machine was not the same act as making and selling the KISS-234 machine. On this basis, the manufacture and sale of the Green Machine could not be serious and effective preparations for the sale of the KISS-234 machine. Accordingly, Universal Balancing failed to engage the s 64 defence.

Universal Balancing contended that damages should not be available prior to the meeting in July 2010, as this was the first time Universal Balancing knew of the patent's existence. The judge found that the area was a relatively patent-poor technological sphere, with a limited number of competitors and that the scope for patentable developments was relatively small.

Against this background, Universal Balancing did not believe that they needed to have active oversight of competitor's patents portfolios. In the circumstances, the judge rejected the assertion that Universal Balancing should have engaged patent attorneys to perform patent searches which would have identified the patent. As a result, the judge held that Universal Balancing could avail itself of s 62 and that no damages for infringement could be recovered in respect of infringing acts that took place before the meeting in July 2010.

Practical significance

This case confirms the very narrow application of the s 64 defence in the UK. In order to satisfy the statutory criteria, the acts relied on by the defendant pre-priority must be essentially identical to the acts carried out post-priority. What is clear from this case is that, when the courts are assessing the similarity of the acts pre- and post-priority, they will view that similarity very narrowly. The practical result is that, for a defendant, it will often be factually very difficult to demonstrate sufficient similarity where the acts differ between the pre-priority act and the alleged infringing act.

The judgment also raises interesting issues in relation to the s 62 defence and in particular in relation to steps which it would have been reasonable for the defendant to take. On the facts, the judge held that it would not have been reasonable to expect Universal Balancing to engage attorneys and conduct clearance searches, due to the area being patent-poor with limited scope for technical improvements.

However, the corollary of this reasoning is that s 62 is unlikely to be available in the same circumstances to companies with in-house patent attorneys, or in patent-rich areas where such companies are likely to have the resources. More importantly, the expectation that there are likely to be competing patents in the milieu and are all too aware of the need to perform clearance searches in areas of interest.

This decision also provides salutary guidance for patentees, who, if in doubt, should furnish information about key patents to their competitors, ideally a copy of the patent itself, to guard against the possibility that a successful claim for infringement is not met with a plea under s 62.

New Balance wins shoe battle with Bestseller: a lesson in enforcement

Author: Hanne Weywardt (MAQS Law Firm, Copenhagen)

New Balance v Bestseller, Danish Supreme Court, 30 May 2012

Journal of Intellectual Property Law & Practice (2012), doi: 10.1093/jiplp/jps135, first published online: 17 September 2012

The Danish Supreme Court affirmed the ruling of the court of first instance, awarding New Balance DKK 2.5 million in damages and around DKK 500,000 in case costs for unfair competition and trade mark infringement.

Facts

The Bestseller products, ‘JJ Slick’ and ‘JJ Stan’, were found to be close imitations of the New Balance product line under the brand PF FLYERS, these being the models ‘SGrounder Hi’ and ‘Number 5’, each of which came in several styles. Bestseller had sold 7,000 pairs of ‘JJ Slick’ and 12,800 pairs of ‘JJ Stan’, these sales being spread across most of the countries in Europe. One model, ‘JJ Slick’, was purchased by Bestseller from a Chinese supplier, whereas ‘JJ Stan’ was designed by an in-house designer with Bestseller.

Images of the products in question:

NEW BALANCE / PF FLYERS

BESTSELLER JJ SLICK

NEW BALANCE/PF PFLYERS – BESTSELLER JJ STAN

NEW BALANCE/PF PFLYERS – BESTSELLER JJ STAN

Additionally, Bestseller had distributed 290,000 copies of an advertisement magazine in connection with their marketing of its products in which there was a picture of a sticker art wall depicting New Balance's trade mark PF FLYERS. This was found to constitute a trade mark infringement, despite the argument from Bestseller that a picture of a sticker art wall which was not prepared or manipulated by Bestseller was not used in direct correlation with the shoe products in question and did not constitute trade mark use.

Analysis

The Supreme Court decision is of principal importance. If you look back at case law in recent years within this field, it would be difficult to predict the outcome of Supreme Court rulings when it comes to the question of infringement. However, this Supreme Court ruling clearly states that you have to be very careful in not making a business out of other companies' creations and creativity or riding on another's marketing efforts.

Practical significance

The case is a good example of highly effective enforcement in order to stop an infringement. Bestseller's products were put on the market in late September 2006. New Balance took action by filing a request for a combined procedure with the bailiff's court for preservation of evidence and injunctive relief. The goods were off the market by mid-December, still rendering New Balance a substantial amount in compensation. From a Danish perspective, the amount of compensation is historically high. This can be seen as a result of the implementation of the EU Enforcement Directive (2004/48) by which the law in Denmark was changed with effect from 1 January 2006. When calculating the amount of damages to the right holder, the court should now take into consideration among other things the unfair profit of the infringer.

Bestseller had made an unfair profit of DKK 1.7 million and with the recent ruling awarding New Balance a considerably higher amount, the ruling confirms that it is not worthwhile violating the rights of other businesses.

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.