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New weapon to use against patent trolls

30 April 2015

Summary and Implications

In an application that the Judge himself characterises as unprecedented, a company accused of infringing a patent applied to the High Court for the owner of the patent to disclose the commercial contracts it had with existing licensees under the patent even before court proceedings were brought. It sought this information in order to assess whether it should defend the claim (which would be expensive) or seek a commercial settlement in advance of legal action. The Judge agreed that the owner of the patent should disclose the licence agreements to enable the applicant to quantify the value of the claim for patent infringement. The case raises an important point of principle which may have profound implications, namely:

  • the judgment establishes a new weapon for potential litigants to use against patent trolls, forcing such trolls to disclose licence terms, levelling the playing field between alleged infringers and patent proprietors
  • the result strengthens the English courts’ position as the venue of choice for applicants seeking to prevent unmerited claims from patent trolls, and
  • the requirement for parties to keep the overriding objectives at the forefront of their minds and consider whether pre-action disclosure will ensure that parties are on an equal footing, saving time and expense for all parties and the court.

Parties can all too often spend large sums of money litigating issues which can be entirely disproportionate to the size of the claim. This is especially familiar in proceedings in the USA, where a party can use the prospect of a claim as a means of forcing a settlement payment. This decision is a big step in helping establish a level playing field, fairly balancing the position of parties where one holds important, relevant information not otherwise available to the other. It could dramatically change the way such claims are dealt with.

What happened?

The Big Bus Company Limited (“Big Bus”) operates open top bus sightseeing tours. Ticketogo Ltd (“Ticketogo”) is the proprietor of United Kingdom Patent No. 2 391 101 entitled “Ticketing system” (the “Patent”). The Patent discloses and claims a method of issuing over the internet a ticket containing a bar code in an image file format. Ticketogo’s lawyer claimed at the hearing that Ticketogo has now granted in excess of 60 licences for its Patent.

The parties had engaged in pre-action correspondence as a result of Ticketogo’s assertion that Big Bus’ method of issuing tickets infringed its granted Patent. Despite Ticketogo repeatedly relying on the fact that other companies have taken licences in an effort to persuade Big Bus to take a licence under the Patent, Big Bus remained resolute that its own ticketing system did not fall within the claims of the Patent. There was also that question whether Ticketogo’s Patent was even valid. Nevertheless Big Bus considered it desirable to resolve the dispute through a commercial agreement in the face of the considerable expense of patent litigation and irrecoverable costs it may incur. Big Bus therefore requested pre-action disclosure of certain documents to enable it to establish the value of Ticketogo’s claim and thus assist the resolution of the dispute by way of an informed settlement. Ticketogo refused to give disclosure therefore Big Bus made what is known as a “Pre-Action Disclosure” application of Ticketogo’s completed licences through the courts ie applied for the disclosure of certain, requested documents before legal proceedings have commenced.

After weighing up the merits of both parties cases, the Judge ordered Ticketogo to give disclosure of the licences it had granted to companies operating in the transport sector.

Legal summary

This judgment has wide applicability and is not confined to patent and intellectual property cases.

Essentially it means that the courts must now consider the desirability of pre-action disclosure of documents which concern the value of the claim to see if such disclosure will (i) dispose fairly of any anticipated proceedings; (ii) assist the dispute to be resolved without proceedings being commenced; and, ultimately (iii) save costs by avoiding drawn out litigation. It must however be noted that an application for pre-action disclosure may not be used as a “fishing” exercise and disclosure will only be awarded under specific circumstances (depending on the facts of the case). A claimant must specify the documents or classes of documents which it desires the defendant to disclose as part of the application.

It is well established that the test for pre-action disclosure requires a two-stage approach. The first stage is to consider whether the applicant and respondent are likely to be parties to any subsequent proceedings, whether the respondent’s duty of standard disclosure would extend to the documents or classes of documents subject to the pre-action application if proceedings had started, and whether disclosure would dispose fairly of the anticipated proceedings, assisting the court by negating the need for legal proceedings and save costs.

The Judge considered that the jurisdictional tests were plainly satisfied. Ticketogo was the owner of the Patent and Big Bus was the alleged infringer. If proceedings for infringement were to commence, these companies would be the parties to those proceedings. Counsel for Big Bus submitted that the duty of standard disclosure related to the proceedings as a whole and not just the liability stage in the event that a split trial was ordered. The Judge felt that this test was satisfied, but only in relation to a sub-set of documents sought by Big Bus; standard disclosure extends to documents which adversely affect the disclosing party’s case or which support another party’s case. This includes the case on quantum. The Judge also felt that any such award would allow Big Bus to assess what was at stake in terms of quantum (often disproportionate to the costs of litigation).

If the jurisdictional test is satisfied, the second stage is to consider whether, as a matter of discretion, an order should be made. Ticketogo asserted that its existing licensees had entered into licences without the benefit of disclosure of licence terms and that it would be time-consuming and costly to seek the consent of third party licensees to the disclosure. The Judge however dismissed this argument – all that would be required was a letter to licensees notifying them of their right to object to inspection of the licences.

Ticketogo also asserted that Big Bus could form its own view of the commercial value of Ticketogo’s claim and that any pre-action disclosure impinged heavily on the freedom of negotiation ordinarily enjoyed by parties seeking a commercial agreement. In this respect, the Judge said there were two points to be made: Big Bus did not have access to the key information in this case – the terms of the comparable licences granted by Ticketogo to third parties; and it is not an answer to an application for pre-action disclosure for the patentee to argue that it would be deprived of the ability to negotiate terms with a prospective licensee freely (without the licensee knowing what other licensees have agreed to pay for the licence). On the contrary, the Judge said that, “transparency is a virtue,” where price information is concerned.

This judgment may be seen as an extension of the principles established in Huawei Technologies Co Ltd v ZTE Corp ZTE Deutschland GmbH [2014] E.C.C. 13 where the judge decided that before a standard essential patent owner takes action against a potential patent infringer, it must first alert the alleged infringer to that fact in writing, specifying the way in which the patent has been infringed, and present the alleged infringer with a written offer for a licence on fair, reasonable, and non-discriminatory terms that contains all the terms normally included within a licence in the sector in question, including in particular the precise amount of the royalty and the way in which that amount is calculated.

Practical considerations?

Parties should consider if the disclosure of certain documents, even before proceedings have commenced if such documents would assist negotiations and avoid adversarial proceedings. Parties should always consider what steps they can take to assist the resolution of a dispute without incurring lengthy and costly court proceedings which can take up a vast amount of time. The disclosure of documents by way of pre-action disclosure is now one of those steps.

This article was written by Ian Wood.

For more information please contact Ian on +44 (0)20 7203 5124 or at ian.wood@crsblaw.com