Wagner International AG & Ors v Earlex Ltd

I have before me an application to order a trial of a preliminary issue in a patent action. The claim form was issued on 16 ^th June, 2010. The claimants are Wagner International AG and some other Wagner companies. The defendant is Earlex Ltd. The claim is for infringement of European Patent UK No. 0596939 entitled "Improved air cap for paint spray gun". The patent was filed in 1992, claiming priority from 1991 and was granted in 1998. It is in force in the United Kingdom. It expires in 2012. The patent relates to an air gun used for spraying paint.

Infringement is in issue in relation to two products of the defendant, which have been called the "Original Product" and the "Modified Product". Validity is in issue. The defendants having pleaded a defence that the patent is invalid on various grounds, including an alleged prior use which took place in 1991, added subject matter and obviousness over pleaded prior art.

It is estimated that the trial of this action will take something like four to five days. It may take a little less if the prior use issue is shaken out during the course of the pleadings.

The defence also includes a plea at paragraph 13 referring back to paragraph 11 of the Particulars of Claim. The Particulars of Claim at paragraph 11 plead as follows:

This is a defence of innocence which arises under s.62(1) of the Patents Act 1977. That section provides as follows:

The application for a preliminary issue is to determine this question of innocence as a preliminary matter. The claimant says it could be dealt with in one day before the summer vacation, whereas the trial is likely to be listed not before December 2011.

The claimants put their case in their skeleton argument to me on the basis that it was a pure point of law. I have to say, when I pre-read these papers, I could not quite understand why that was the case. But in the course of the submissions it emerged how this was being put forward. In order to understand this one needs to see some Further Information which was given by the defendant in September 2010. In September the claimants asked for Further Information from the defendant in relation to various matters. The relevant Request and Response are the following:

The reason the claimants submitted, at least initially, that this preliminary issue was a pure question of law was because what they had in mind was the following. First they would admit - and I should say that they have not so admitted - that the defendant was not aware that the patent existed as a matter of fact. Second they understood that the only matters which were put forward to satisfy the second limb of s.62, (that the defendant had no reasonable grounds for supposing the patent had existed), were the matters set out in the Further Information. They were first the absence of marking, second the absence of the notification of the patent despite longstanding contact, and third the claimants' knowledge of the defendant's allegedly infringing product. Furthermore, they would admit that it is right that the claimants’ products were not marked, that it is right that there was longstanding contact between the parties, and that it is right that the claimants knew about the defendant's alleged infringing of product, although it is fair to say that the question of when that knowledge arose does not seem to have been dealt with. However, it was on the footing, as I understand it, that those factual matters were all going to be admitted that the only question that would arise, say the claimants, is a question of law, namely, that those three matters - the marking, the relationship, and the claimants' knowledge - were not sufficient to satisfy the second limb of s.62.

The claimants rely on the decision of Mr. Justice Neuberger (as he then was) in Steel v. Steel , a decision given on 27 ^th April, 2001 in the Chancery Division. It appears to be unreported. I was given a copy of that decision. The import of the decision was helpfully summarised in Mr. Davis' skeleton at para. 22. Mr. Mitcheson, I should say, quite rightly took me through the detail, but in the course of doing the detail it became clear that the summary, which I believe Mr. Davis had told me came from a legal textbook, was actually a fair summary. The criteria set out by Mr. Justice Neuberger are as follows:

I should deal with the primary point that the claimants rely on. They submit that the preliminary issue they propose is likely to be determinative of the action, or, to be exact, the way they put it is "likely to be close to being determinative of the action". The reason for this can be seen from looking at the chronology of events.

2004 is the starting point because that is the beginning of the limitation period running back from the date of the claim form in this case. At that stage the defendant's Original Product appears to have been on sale, but the Limitation Act means that damages could not go back before 2004. In December 2008 the defendant was notified of the existence of the patent by the claimants - or, to be more exact, by their German patent attorneys. In February 2009 the defendants produced a Modified Product. That replaced their Original Product. I did notice that in the claimants' evidence it was suggested that somehow that had been a design around the patent, as if that was some pejorative expression. As the claimants and their attorneys, and the defendants and their attorneys know perfectly well there is nothing wrong with designing round a patent. That is what they are for.

In November 2009 a Further Modified Product was produced. In June 2010 the claim form in this case was issued. The point is that the claimants accept that the Further Modified Product does not infringe. Since that is the product which is currently on sale, they accept that an injunction under the patents is unlikely to be of any commercial significance because the defendant is not selling a product which would be covered by the injunction and the patent will expire in 2012.

The damages which, on the claimants case, they would be entitled to, would relate to the Original Product and the Modified Product. They would start from 2004 and run up until November 2009. But, if the s.62 point is a good one, then the damages will only start some time around December 2008 or, depending on how precisely the s.62 defences fall out, it is possible that there might be some period of time after that for a period of reasonable notice to expire. But, in any event only the Modified Product for sure will avoid the s.62 defence. Possibly all, or possibly the vast majority, of any damages for the Original Product will be excluded by the s62 defence if it succeeds.

It has been estimated to me that the preliminary issue, if it is found in the defendant's favour - in other words, if the defendant's establish innocence - will reduce the damages claim to something of the order of 10 to 20 percent of what it would have been without it. I have been told that the sorts of figures for the total damages that this case might concern are figures of the order of £10 to £20 million. It may be somewhat less, but just as a very rough-and-ready figure one can see how the case stands.

So, if the innocence defence is made out, then it makes a very substantial difference to the commercial value of this case. It seems to me that if it were possible to determine whether this was a case that was about £20 million rather than £2 million at a relatively early stage, and at relatively low cost, that would be a generally good idea. However, for reasons which will emerge, it seems to me that on analysis that is not in fact what is happening in this case.

The problem is as follows: As the defendants have made clear, first of all, their case on innocence is not - and, I must say, as I read their pleading, never was - pleaded fully in the response to Further Information. The response to Further Information says,

However, it is fair to say that this case is unusual in that it does seem to relate mainly, almost solely to damages. I am not suggesting for a moment that the normal way of running a patent case would not be appropriate in this case - having an inquiry only afterwards one liability is established. But, one can quite see that the commercial centre of gravity in this case is unusual for a patent case because damages are truly the only issue of any substance.

The application for a preliminary issue by the claimants only came after they had received the Further Information. Although it appears that the claimants had in mind that they might ask for a preliminary issue to be ordered before requesting Further Information, they deliberately chose, as I understand what Mr. Davis told me, not to tell the defendant when they sought the Further Information. Mr. Davis told me he had good tactical reasons for that. I am bound to say that I did not find his tactical reasons compelling. It seemed to me that it would have been rather better if he had told them because then he could have said to me, "Well, we told them we were thinking of a preliminary issue. Look at the response we got". In fact, the opposite has happened and this whole thing has arisen partly because Mr. Davis and his clients are trying to take a pleading, which was never intended to set out the full totality of the defendant's case, as if it does. That is a good measure of why we are where we are.

The problem is as follows: the defendants have issued a claim form against their patent attorney at the time - and I understand is still their patent attorney - Mr. Nigel Brooks. It is a negligence claim. It was issued to protect the position in relation to the Limitation Act and then immediately stayed by consent pending the resolution of this case. Mr. Mitcheson tells me that his client's attitude is that if they win the case on validity then the way it can be put fairly is that there does not seem to be much needing to be dealt with in the negligence action. I can quite see why that is the case, although, to be absolutely clearly, no-one - least of all Mr. Mitcheson or me - is deciding as a matter of finality that that is the case. Nevertheless, the problem is that the issue of negligence is intimately tied up with the innocent defence. I can quite see why that might be the case.

Mr. Davis rightly says to me, "Well, if you look at the response to Further Information there is nothing in that response which ties the innocence defence as pleaded in the Further Information to the question of Mr. Brooks and his alleged/possible negligence.” I rather agree with Mr. Davis that taking the Further Information on its face it is not obvious that there is a link between the points made in the Further Information and any possible negligence claim that might exist. However, it seems to me that the answer to that is that this pleading was never intended to deal with issues of that kind and it was not, and did not, set out the totality of the defendant's case. It seems to me perfectly clear that if the issue of innocence was to be ordered to be determined at a trial of preliminary issue, the defendants have more to say than they have put in this Further Information. That means that the idea that this innocence defence is a pure point of law would turn out to be quite wrong.

It is also highly likely that it would make an awful lot of sense for the patent attorney and his representatives to be represented at the preliminary issue hearing and possibly for the question of negligence to be decided at the same time as the innocence defence. One can speculate as to all sorts of possible linkages. It is not my function to do that. It is, on the other hand, my function to decide the matter before me and I would even go as far as to say that it would be rather surprising if the innocence defence was not linked to the negligence issue. There is not just a question of judicial resources, but the fact that it is highly desirable to avoid the risk of inconsistent judgments. Just taking one example: part of the innocence defence involves the assertion by the defendants that they simply did not know that the patent existed. Now, there is absolutely no evidence about that in this case so far. But, one could imagine that in another case the patent attorneys might say, "You did know the patent existed". That might be part of a defence to a negligence claim and an entirely different factual basis from the factual basis that has been put in this court. I should make it absolutely clear that I am speculating and I have no basis for saying that that is what is going on in this case. But, it seems to me perfectly obvious that these issues are likely to be linked together.

I will now go through and apply Mr. Justice Neuberger's criteria to the matters as they stand before me.

It will not dispose of the whole case on any view. It will dispose of one aspect possibly because it will dispose of perhaps the whole of the Original Product. However although it will not dispose of the whole case or an aspect of it, it will assist the parties, if it was possible, to understand what the commercial significance of the case actually is. So, this point, I think, is marginally in favour of ordering a preliminary issue.

This I do not think is in favour of a preliminary issue. In my judgment that factor is significantly against a preliminary issue because it is clear this preliminary issue will not mitigate the need for a trial at all. The only thing that it may well do is cause the parties to settle. Mr. Mitcheson tells me his clients do not see why they should settle if the patent is invalid. I understand his submission. Nevertheless, it is fair to say that in litigation, if you know you are fighting about £20 million it is a rather different case from a case where you know you are fighting about £1 million or £2 million.

This is where the problem was arisen because the point was put to me as if it was an issue in law. It manifestly is not. In fact, the preliminary issue, as I understand it, would involve a significant amount of effort on the facts in order to decide it. Since we do not have a full pleading from the defendants we do not know exactly what it is. As I said to Mr. Davis in the course of argument, I can quite see that if all there was was the issue that was pleaded in the Further Information, then it might well be something that could be decided on some sort of preliminary point but, as I said, it is clear that that is not the case According, as matters stand, Issue (c) is not in favour of preliminary issue and will depend on seeing a pleading from the defendants.

Well, this is again the same point as (c) that I have already dealt with. It seems to me that the facts are not agreed, although Mr. Davis was disposed to tell me that his clients agreed with the facts as they appeared so far, but the point is that they are not the totality of all the facts that are likely to be in issue.

I do not think this weighs particularly either way. If anything, it is in favour of a preliminary issue because the decision would tell us what the commercial position in this case is.

I have already dealt with that: It will help in settlement.

This is a point where the defendants say, of course, that if the patent is invalid the point will never arise. They are absolutely right. On the other hand, we are back to the point about commercial significance.

I do not think that applies and neither side was pre-disposed to put it to me.

This is the point where Mr. Mitcheson submits to me that Mr. Brooks' position comes into play. In my judgment that is absolutely right. It seems to me that to order a preliminary issue would be highly likely to involve re-awakening the negligence action. That would not be just and right. That is why I decline to order a preliminary issue in this case.

I have, however, indicated that I will require the defendants to plead their case under s.62. It is perfectly clear to me that they have not done it so far. I do not criticise them for it in the slightest. However, it would be of assistance to both parties for the claimants to understand the innocence defence in proper detail (I am not talking about evidence-level detail). If, on the basis of that defence as pleaded out, it can be seen perhaps that the defence, on the face of it, is a good one then that will assist the parties in appreciating the likely commercial significance of this case. Vice versa, if it appears to be a weak one, then, again, the same point applies. So, I am going to order that the defendants plead their case on s.62, which is an unusual thing to be doing in a patent case where liability is determined before quantum. However, it seems right to do it in this case.

It now falls to me to summarily assess the costs. I have a statement of costs relating to the application for a preliminary issue. The defendants schedule is set out in the usual form and comes to a grand total of £12,683. That can be compared with the claimants' equivalent schedule which comes to a grand total of £13,294.83. I have ordered that the claimants will pay 90 percent of the defendants' costs. That, of course, is 90 percent of the defendants' costs assessed. It falls to me to summarily assess them.

Summary assessment is a rough-and-ready exercise. Nevertheless, there are some matters in this bill which strike me. I am struck, in particular, frankly, by the overall total. £12,000 seems like a rather substantial sum of money for a hearing which was dealt with in a couple of hours in this court. The mere fact that both parties' costs are similar does not mean that it is a reasonable sum to expend. When I look into the detail some of it - actually a relatively small amount - relates to dealing with the solicitors relating to the negligence action; most of it is general matter and there is no obvious figure which stands out, except possibly the amount of time spent on documents. Item 5 on the bill - seven hours - is a little on the high side.

Doing the best I can, I will summarily assess these costs at a total of £9,500 and then 90 percent are to be paid. £8,550.