Cranway Ltd v (Playtech Ltd & Anor

Cranway Limited is the proprietor of a patent relating to computer gaming. The field of the invention is described in paragraph 1 of the patent in the following terms:

“This invention relates to an interactive, real time, realistic ‘home’ computer gaming system using general purpose computers. The system comprises a central or host computer, a plurality of terminal computers forming player stations remote from the host, communicating means for connecting each of the terminals to the host, and program means for operating the computers and the communication between the terminals and host. Aspects of the invention concern auditing and security to ensure fairness for players and prevent players defeating the outcome of a game; fast, efficient communication to enable reliable, low cost, real time, realistic operation; accounting; and enabling players to play a variety of games.”

The scope of the monopoly claimed by the patent is set out in claim 1. Leaving out the various numerals to identify particular elements, what is claimed is as follows:

“A gaming system for playing an interactive casino game, comprising a host computer, at least one terminal computer forming a player station, communication means for connecting the terminal computer to the host computer, and program means for operating the terminal computer, the host computer and the communication means wherein:

a.

the terminal computer has a processor and connected to the processor a video display unit and a data entry means;

b.

the terminal computer has terminal program means for:

- establishing a secure communication with the host computer;

- generating simulation output appropriate to a game including an account status of a player playing the game; and

- generating a terminal data packet representative of a valid user response generated by activation of the data entry means, and sending the data packet to the host computer;

c.

The host computer has program means for

- generating a random number for a game being played on a terminal computer within preset criteria for that game in response to a valid terminal data packet received from said computer terminal; and

- storing an account status for a player playing the game;

characterised in that:

- the terminal computer is sited at a location remote from the host computer;

- the communication means is operable to connect the terminal computer to the host computer via a public telecommunication link;

- the host computer has program means for generating host control data packets for controlling the simulation output of the terminal computer;

- processing is distributed between the host computer and the terminal computer such that a game result and an account status are processed at the host computer and the simulation output is processed at the terminal computer so that only the minimum relevant information is transmitted between the host and terminal computers; and

- the simulation output is generated in response to host control data packets received by the terminal computer from the host computer”.

The original inventor and original proprietor of the patent is Dr. Julian Menashe. While Dr. Menashe was the proprietor of the patent there was litigation which went to the Court of Appeal, to which I will refer in due course. Cranway Limited is now the proprietor of the patent and claims that the patent has been infringed. The claim is made against Playtech Limited, a company incorporated in the British Virgin Islands, and the Horserace Totalisator Board, commonly known as the Tote, which is a public corporation.

On 3^rd August 2006 Master Bowles made an order permitting Playtech Limited to be served outside the jurisdiction. Playtech has now applied to set aside that order for service outside the jurisdiction and the Tote has applied to strike out the particulars of claim on the ground that they do not disclose a cause of action with a reasonable prospect of success.

One of the peculiarities of the claim in the present case is that both the Tote and Playtech are alleged to be legally responsible for a number of other entities which are either subsidiaries of the defendant in question or, in the case of Playtech, what are called “affiliates”. I will deal with those matters later.

The claim for infringement is dealt with, so far as Playtech is concerned, in paragraph 8 of the particulars of claim. Infringement is described in section 60 of the Patents Act 1977 in the following terms. Subsection (1) provides, so far as is material:

“Subject to the provisions of this section, a person infringes a patent for an invention if, but only if, while the patent is in force, he does any of the following things in the United Kingdom in relation to the invention without the consent of the proprietor of the patent, that is to say – (a) where the invention is a product, he makes, disposes of, offers to dispose of, uses or imports the product or keeps it whether for disposal or otherwise”.

Subsection (2) provides, so far as is material:

“Subject to the following provisions of this section, a person (other than the proprietor of the patent) also infringes a patent for an invention if, while the patent is in force and without the consent of the proprietor, he supplies or offers to supply in the United Kingdom a person other than a licensee or other person entitled to work the invention with any of the means, relating to an essential element of the invention, for putting the invention into effect when he knows, or it is obvious to a reasonable person in the circumstances, that those means are suitable for putting, and are intended to put, the invention into effect in the United Kingdom.”

Paragraph 8 of the particulars of claim alleges that Playtech has carried out certain acts in the United Kingdom without the consent of the claimant. Those acts are particularised in the following terms:

“(1)

making, disposing of, offering to dispose of, using, importing and keeping for disposal or otherwise, systems for playing interactive casino games within the meaning of the claims of the Patent and each of those claims (‘the Playtech Gaming Systems’). (a) The Playtech Gaming Systems include computer systems specifically adapted by the installation and configuration of Playtech’s software including, inter alia, Playtech’s Client Facing, Server Side, Front End and Back End software, and its Universal Gaming Platform (together ‘the Playtech Software’). (b) Pending disclosure and requests for further information, the Claimant relies upon the provision of the Playtech Gaming Systems to the Tote (as defined below).”

The opening rubric of those particulars of infringement simply follow the words of section 60(1) without any real attempt to analyse or identify what parts of section 60 are in fact relied on. The only act which is pleaded is the provision of the Playtech Gaming Systems to the Tote, but even the Playtech Gaming Systems, spelt as they are with capital letters, are not really identified except in so far as they are said to be systems for supplying interactive games within the meaning of the claims. So the identification of what is actually complained of is dealt with only in the most vague and general terms.

Paragraph 8(2) of the particulars of claim says this:

“further and in the alternative, the supply and offer to supply of the Playtech Software and/or constituent parts thereof, each such part being mean relating to an essential element of the invention for putting the invention of the Patent into effect when Playtech knew and/pr it was obvious to a reasonable person in the circumstances that those means are and were suitable for putting, and are and were intended to put, the invention of the Patent into effect in the United Kingdom.”

Again, that tracks very closely the words of the statute itself. The act which is pleaded is the supply and offer to supply either ‘the Playtech Software’ or constituent parts of it.

The general requirements for pleadings are set out in Part 16.4 of the Civil Procedure Rules. Those require that particulars of claim must include “a concise statement of the facts on which the claimant relies”. What are to be pleaded are facts, not legal conclusions.

In NEC Semi-Conductors Limited v. The Commissioners for Her Majesty’s Revenue and Customs [2006] ECWA Civ 25, Mummery LJ said this:

“While it is good sense not to be pernickety about pleadings, the basic requirement that material facts should be pleaded is there for a good reason – so that the other side can respond to the pleaded case by way of admission or denial of facts, thereby defining the issues for decision for the benefit of the parties and the court. Proper pleading of the material facts is essential for the orderly progress of the case and for its sound determination. The definition of the issues has an impact on such important matters as disclosure of relevant documents and the relevant oral evidence to be adduced at trial. In my view, the fact that the nature of the grievance may be obvious to the respondent or that the respondent can ask for further information to be supplied by the claimant are not normally valid excuses for a claimant’s failure to formulate and serve a properly pleaded case setting out the material facts in support of the cause of action.”

In the case of a patent action there is a further requirement imposed by Part 63.9 of the Civil Procedure Rules and paragraph 11 of the Practice Direction. Part 63.9 requires the statement of case in a claim for patent infringement to contain “particulars as set out in the practice direction”. Paragraph 11 of the Practice Direction states:

“In a claim for infringement of a patent – (1) the statement of case must (a) show which of the claims in the specification of the patent are alleged to be infringed; and (b) give at least one example of each type of infringement alleged”.

Mr. Nicholson submits that what that means is that there must be an example of one type of infringement falling within section 60(1) and one type of infringement falling within section 60(2) where both sub-sections are relied upon. I do not agree. The function of pleadings in patent actions, just as in other types of litigation, is to give the defendant fair notice of what is being alleged against him. If Mr. Nicholson is right there are endless possibilities of a defendant being taken by surprise. What the practice direction, in my judgment, requires is that the claimant gives an example of making the product, an example of importing the product, an example of using the product, an example of disposing of the product and so on. If he cannot plead an example, then he should not plead that type of infringement. In addition, if the sale of product A and product B are each alleged to infringe the patent, then an example of each type of product must be alleged.

That this is the function of particulars in a patent action is, in my judgment, made clear by the notes to Part 63.5 of the Civil Procedure Rules as contained in paragraph 2F-13 of Civil Procedure. What the notes say, omitting reference to authority is this:

“The patentee need not give his construction of his patent, the function of particulars of infringements being merely to point out to the defendant what specific act on his part is complained of so as to prevent surprise at the trial.”

So it is specific acts, that is to say, facts, which must be pleaded by way of particular of infringement and it must be a specific fact in relation to each potential way in which the patent is alleged to have been infringed. In the present case all that seems to me to be pleaded in paragraph 8 of the particulars of claim is the provision of a system. As pleaded this can only be an example of disposing of the product. As regards all other forms of infringement, no examples have been given.

In the litigation which I have already mentioned, reported as Menashe Business Mercantile Ltd v. William Hill Organization Ltd [2003] RPC 575, the Court of Appeal considered a different question which arose under this very same patent. The Court was plainly of the view in that case that the patent claimed a system which was a combination of hardware and the software used to run it. The particular question which the Court had to decide was whether the location of a server outside the United Kingdom gave a defence to a claim under section 60(2) of the Patents Act 1977 if the claim had otherwise been a good one. If the claim had not included the server itself, then the question which the Court was asked to decide would have been a wholly irrelevant question.

Here what seems to be alleged is that the first defendant, Playtech, has provided software. There is no allegation that it has provided the hardware. In order to infringe a patent claiming a product the defendant must fall within all the integers of the claim. In the present case, on the face of it, the defendant does not. Mr. Nicholson argues that the boundary between a computer program, as such, and the claim to a product whose functionality depends on operating a program on known hardware is a grey area that warrants a trial. I do not agree. If it is alleged that the system is restricted to the software alone then, it seems to me, that that ought to be made clear as a matter of pleading at the very least.

The claim under section 60(2) is that the first defendant has supplied means relating to an essential element in the invention intended to enable it to be put into effect in the United Kingdom. Mr. Speck makes the point that it is not pleaded that the supply took place within the United Kingdom. He points to the opening words of paragraph 8 which alleges that “Playtech has carried out the following acts in the United Kingdom without the consent of the Claimant”, and points out that when the particulars of that allegation are given there is no further mention of the United Kingdom. As a matter of pleading, it seems to me that it does just plead a cause of action although it is one which cries out for further information.

The allegation of infringement against Playtech also alleged that Playtech is responsible not only for things that it did itself but also for things done by other companies. This vicarious responsibility is put in two different ways. Firstly, that Playtech procured tortious acts to be carried out by others and, second, that the acts in question were part of a common design. No particulars of this allegation are given; no act is identified which Playtech is alleged to have procured and the common design was not identified. Nor is there alleged any fact from which it is said the common design can be inferred.

This question was considered by the Court of Appeal in Generics (UK) Ltd v. H Lundbeck A/S [2006] EWCA Civ 1261. In the course of his judgment, Jacob LJ said at paragraph 21:

“As the judge observed quite a lot of this is conclusory in nature. Asserting that the defendants have combined together does not mean in itself that they have combined together. What really matters is the detail which has been supplied to show the combination.”

In the present case, no detail has been provided at all.

In The Mead Corporation and another v. Riverwood Multiple Packaging Division of Riverwood International Corportation [1997] FSR 484, Laddie J had to consider a similar sort of question. He was dealing with the question of service out of the jurisdiction which requires evidence to be given as well as simply a pleading, a question to which I shall return. At page 490 Laddie J said this:

“The court must be satisfied that there are proper grounds before it allows foreign parties to be exposed to the expense and inconvenience of joinder in proceedings here. In particular, it is not enough merely to point to the fact that the English and the foreign defendants are closely related to one another either by shareholding or otherwise. It is for that reason that in Chefaro the Court of Appeal reaffirmed that the fact that the foreign corporation had overall control, both financial and voting, of the English defendant was not sufficient by itself to enable the court to conclude that there is a good arguable case that the necessary inference of assistance or common design could be drawn. Some evidence that the foreign party was actually involved in furthering the common design of infringement must be shown to the court or, as Glidewell L.J. put it, it is necessary for the evidence to show that the foreign party ‘took part’ in the primary act of infringement. Material which is neutral on this critical issue is of no assistance. It follows that material which merely shows that the foreign and domestic defendants are closely associated with each other, or which shows that the parent regards itself as its subsidiaries as a single economic unit throws no light on the issue of who took part in the acts alleged to infringe the patent.”

As I have said, Cranway applied to serve Playtech Limited outside the jurisdiction. The application was made under Part 6.21 of the Civil Procedure Rules. That rule requires that the application for permission “must be supported by written evidence stating – (a) the grounds on which the application is made and the paragraph or paragraphs of rule 6.20 relied on ; (b) that the claimant believes that his claim has a reasonable prospect of success; and (c) the defendant’s address or, if not known, in what place or country the defendant is, or is likely, to be found.”

The evidence which was shown to the Master did not address the merits of the underlying claim against Playtech at all, although it did contain a statement by Cranway’s solicitor that he believed that the claim had a reasonable prospect of success. Mr. Nicholson argues that evidence of that nature coupled with particulars of claim verified by a statement of truth are adequate to support an application for permission to serve the claim form out of the jurisdiction.

The traditional approach to applications for permission to serve outside the jurisdiction was discussed by the House of Lords in Seaconsar Far East Limited v. Bank Markazi Jomhouri Islami Iran [1994] 1AC 438. In particular at page 451, Lord Goff quoted with approval a statement made by Lord Davey in the House of Lords in an earlier case. Lord Davey said this:

“Rule 4 of [Order 11] prescribes that the application is to be supported by evidence stating that in the belief of the deponent the plaintiff has a good cause of action, and no such leave is to be granted unless it be made sufficiently to appear to the court or judge that the case is a proper one for service out of the jurisdiction under this Order. This does not, of course, mean that a mere statement by any deponent who is put forward to make the affidavit that he believes that there is a good cause of action is sufficient. On the other hand, the court is not, on an application for leave to serve out of the jurisdiction, or on a motion made to discharge an order for such service, called upon to try the action or express a premature opinion on its merits, and where there are conflicting statements as to material facts, any such opinion must necessarily be based on insufficient materials. But I think that the application should be supported by an affidavit stating facts which, if proved, would be a sufficient foundation for the alleged cause of action, and, as a rule, the affidavit should be by some person acquainted with the facts, or, at any rate, should specify the sources or persons from whom the deponent derives his information.”

Lord Goff then considered other authorities and summarised his eventual conclusion at page 456 as follows:

“Once it is recognised that, so far as the merits of the plaintiff’s claim are concerned, no more is required than that the evidence should disclose that there is a serious issue to be tried, it is difficult to see how this matter, although it falls within the ambit of the court’s discretion, has not in practice to be established in any event. This is because it is very difficult to conceive how a judge could, in the proper exercise of his discretion, give leave where there was no serious issue to be tried.”

If Mr. Nicholson is right in his submission there has been a radical change in practice since the House of Lords decided the question in 1994, but there is no hint of such a change of practice either in the Rules or indeed in the Notes to Civil Procedure which accompany the Rules. In my judgment there has been no such change in the legal requirements of an application to serve outside the jurisdiction.

It follows, in my judgment, that the evidence presented to the Master ought to have gone into the merits of the underlying claim in respect of which the court was being asked to give permission to serve out of the jurisdiction. Apart from the bare statement that in the view of the defendant there was a reasonable prospect of success in the underlying action, no evidence was adduced on the merits of the claim.

Mr. Nicholson points out, quite correctly, that in patent cases the Master’s jurisdiction is a limited one. It is circumscribed by paragraph 8 of the practice direction. That is all true, but one of the matter over which the Master has jurisdiction, and which he exercised in the present case, is the giving of permission to serve outside the jurisdiction. There is no suggestion in the practice direction that there is some special test applicable only to patent cases.

In my judgment, therefore, the evidence before the Master was inadequate to demonstrate that there was a serious issue to be tried. That conclusion is all the more so because the particulars of claim are so general and unparticularised. Accordingly, in my judgment, on the material before him, the Master was wrong to permit service out of the jurisdiction.

Having reached the conclusion that he did, the Master made an order. The order did not specify a time for the filing of an acknowledgement of service. The specification of a time for acknowledgement of service is a mandatory requirement of the Rules. Mr. Nicholson submits that the acknowledgement of service is an unnecessary step to take in patent actions and is implicitly dispensed with by Part 63 of the Civil Procedure Rules. Part 63 of the Civil Procedure Rules extends the time for service of a defence to 42 days and does not say anything explicit about dispensing with the need to serve an acknowledgement of service.

It is perfectly true, as Mr. Nicholson points out, that because of the way that a claimant becomes entitled to enter a default judgment, he will not in fact be entitled to enter judgment in default of acknowledgement of service in a patent action until such time as the time for filing a defence has expired and the extension of the time for serving a defence contained in Part 63.6 overtakes the timescales available in ordinary actions. But I do not consider that this means that Part 63 has dispensed with the acknowledgement of service for all purposes. One of the important functions of an acknowledgement of service is that it is the mechanism by which a foreign defendant can challenge the court’s jurisdiction. One would have thought, therefore, that that is a particular reason why, even in a patent case, on an application for permission to serve out of the jurisdiction it is of importance that a date for the service of an acknowledgement of service be specified. Had that been the only question, then I do not think it would necessarily have invalidated the Master’s order and could, no doubt, have been corrected.

Having come to the conclusion that the Master was wrong in permitting the particulars of claim to be served out of the jurisdiction, the next question is whether, in the light of the additional material which has been presented to the court, the order should none the less stand. In my judgment, the answer is no. There is some additional material. It hardly relates to Playtech at all, and the claim against Playtech at the moment is so vague and speculative that I do not consider that the particulars of claim ought to have been allowed to be served in their present form even with the new material.

So far as the claim against the Tote is concerned, paragraph 14 of the particulars of claim follows much the same form as paragraph 8 in repeating all the words in the Act without really analysing or identifying which particular types of infringement are relied upon. The particulars allege that the Tote Gaming Systems include computer systems specifically adapted by the installation and configuration of the Tote’s software including the Playtech Software, and then the only act alleged is then pleaded in sub-paragraph (b) as follows: “Pending disclosure and requests for further information, the Claimant relies upon the acquisition and use of the Playtech Gaming Systems by the Tote and the supply of elements thereof to the Tote’s end using gaming customers”.

I do no at the moment understand what is meant by “the acquisition” of the Playtech Gaming Systems. Mr. Nicholson said that it might be importation, it might be making or it might be something else, but whatever it is it seems to me that it is incumbent on the claimant to identify what it is that he says the Tote has done which infringes the patent. The supply of elements thereof to the Tote’s end user gaming customers appears to be an allegation that when a person logs on to the Tote website for the first time he receives a piece of executable code which, thereafter, lodges in his own computer thereby constituting a part of the system as claimed by the patent.

Again, however, it does not seem to me that paragraph 14.1 of the pleading against the Tote discloses an act of infringement which falls within all the integers of the claim in claim 1. The allegation in paragraph 14.2 relates to the supply and offer to supply of the Tote’s Software. The “Tote’s Software”, although spelt with capital letters, is not defined. It goes on to allege a supply and offer to supply of constituent parts of the Tote’s software, such part being means relating to an essential element of the invention. Again, it seems probable, although by no means clear, from this pleading that what is being relied on here is the executable code which is supplied to the end users of the overall system. Once again, it is alleged that the Tote is responsible for large numbers of subsidiaries but, again, no overt act by the Tote is pleaded nor any act that the Tote is alleged to have procured. Although a common design is pleaded, it is not identified. Nor are there pleaded any facts from which a common design could plausibly be inferred.

Paragraph 16 of the particulars of claim baldly states that there is a common design between both Playtech and the Tote but, again, beyond the bald assertion, which is a legal conclusion, there are no facts pleaded.

Part 3.4 of the Civil Procedure Rules gives the court a power to strike out. The power is exercisable if, amongst other things, the claimant has failed to comply with a rule or practice direction. It is abundantly clear, in my judgment, that the claimant has failed to comply with the practice direction. It has not pleaded facts from which its claim is based. The gateway to the power has, then, therefore, definitely been opened. In some ways, the most difficult question is the question of what to do next. Mr. Nicholson’s fallback position is that if I am against him on his pleading as it currently stands, as I am, then I should allow him the opportunity to amend. Mr. Speck, on the other hand, submits that the claimant has been given an opportunity to amend both in correspondence and before this hearing. In response to the original service of particulars of claim Linklaters, on behalf of the defendants, pointed out a number of deficiencies and gave information to the claimants about which were the relevant companies within the various groups who operated the website known as “totesports.com”.

Herbert Smith, for the claimant, took the view that this information was inadequate and Mr. Nicholson has described possible scenarios which, in certain circumstances, might make the provision of that information inadequate, but those scenarios were all purely speculative and, in my judgment, the information provided by Linklaters to Herbert Smith should have enabled the claimants to reformulate their claim had they wished to do so.

Not without some hesitation, in view of the fact that striking out is a Draconian action to take, I think that enough is enough with this action. The claimant has been given the opportunity to amend, has refused to do so, and even now there is no draft amendment which properly pleads causes of action against the two defendants. I am not suggesting that somewhere inside the pleading there is not a cause of action struggling to get out but it is not visible at this stage.

In my judgment, the order permitting service outside the jurisdiction should be set aside and the claim against both Playtech and the Tote set out.