To Stay Or Not To Stay? The UK Court Of Appeal Implements The Supreme Court Decision In Virgin Atlantic Airways v. Zodiac Seats

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In the August 2013 issue of the Intellectual Property Report, we reported on the UK Supreme Court’s decision in Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd [2013] UKSC 46 (the “Virgin Case”). On November 21, 2013, the UK Court of Appeal gave its decision in IPCom Gmbh & Co Kg v (1) HTC Europe Co Limited, (2) Brightpoint Great Britain Limited, (3) HTC Corporation [2013] EWCA Civ 1496 (the “IPCom Case”). This is the first application by the UK courts of the Supreme Court decision in the Virgin Case and it clarifies the way in which the UK Courts will approach the question of whether to stay patent actions in the UK while there are co-pending opposition proceedings at the European Patent Office (EPO).

Background

This decision applies to the situation where there is a claim for patent infringement in the UK and a co-pending opposition at the EPO. The issue is whether the UK action should be allowed to proceed, with the risk that a finding of infringement and an upholding of validity by the UK, and any damages awarded, could be undone by a subsequent revocation of the patent by the EPO in opposition proceedings. Historically, opposition proceedings at the EPO have taken considerably longer (by a number of years in most cases) than the full litigation process before the UK court.

In its decision in the Virgin Case, the UK Supreme Court held that no damages were payable in relation to a patent subsequently revoked at the EPO. Previously, the UK courts were reluctant to stay actions where there were co-pending EPO revocation proceedings and had upheld infringement damages awarded even where the EPO later revoked the patent in suit (most recently in the case of Unilin Beheer BV v Berry Floor NV [2007] FSR 635). The Supreme Court’s decision changed this. With no damages payable, it was felt likely that the UK courts would re-visit their practice of refusing stays. The IPCom Case is the first example of this new approach.

In particular, the UK Court of Appeal re-visited the guidelines on when to impose stays that had been given in the case of Glaxo Group Ltd v Genentech Inc [2008] EWCA Civ 23, known as the “Glaxo Guidance”. The Glaxo Guidance strongly pointed the UK courts towards refusing to grant a stay. The feeling that the decision in the Virgin Case would change this has been confirmed and the IPCom Case highlights the new approach that the UK courts will take when considering whether to stay UK infringement actions.

The Glaxo Guidance

In his leading judgment in the IPCom Case, Lord Justice Floyd reviewed the Glaxo Guidance. In a nutshell, the issue was that the Glaxo Guidance weighed heavily in favour of not granting a stay, and thus needed balance to bring it into line with the decision in the Virgin Case, including deciding whether, in fact, the impact of the Virgin Case was to necessitate a mandatory stay of the UK proceedings. Given the length of time needed for a final decision from the EPO, this would effectively import the EPO opposition timescale into applicable infringement actions in the UK.

In his judgment, Floyd LJ recast the Glaxo Guidance into a form which did not make a stay mandatory, but did shift the onus on to the party resisting the stay to say why the stay should not be imposed.

The Recast Guidance

Much of the Glaxo Guidance remains the same.

In particular, each case is to be decided on its merits and the discretion on whether or not to stay lies with the Patents Court (the UK’s first instance court for patent actions). As an exercise of discretion, this is not a matter suitable for the appeal courts. Further, there was recognition that under the current European patent system, the possibility of multiple proceedings in different countries is inherent and unavoidable. Thus, the opportunity for swift commercial certainty from the UK court weighs in favour of refusing a stay and the length of time, cost, public interest and certainty in the industry where monopoly rights are involved are all relevant factors.

Floyd LJ has, however, introduced new principles. The clearest change is the removal of the following statements contained in the original Glaxo Guidance, at “sixthly” and “eighthly” respectively. Previously, these were:

“sixthly...there are no grounds justifying ... a presumption that the duplication of legal proceedings in [the UK Court] and in the EPO is, without more, a ground for a stay of the proceedings in the [UK Court]”

“eighthly...much weight should be given to an assertion by a commercial party that it has a good reason for resisting a stay”

Floyd LJ replaced these principles with the following:

“If there are no other factors, a stay of the national proceedings is the default option.”

“It is for the party resisting the grant of the stay to show why it should not be granted.”

The movement towards granting a stay is clear and simply stated. There appear to be no exceptions to the requirement for the onus to be on the party resisting the stay to argue why the UK case should proceed, looking at the original Glaxo Guidance (as re-stated) and several additional relevant factors identified by Floyd LJ.

New Factors

There is a new obligation to take into account whether refusal of a stay unfairly provides a patentee with an opportunity to receive damages which will not be repayable if the patent is later revoked. This was addressed in the IPCom Case by an undertaking to repay any damages if the patent was later deemed invalid. Where a stay is not granted, this is likely to be the position that a patentee resisting a stay will have to adopt or, for example, accept that damages be paid into an escrow account pending the final decision of the EPO.

The prospect of settlement (not just of the UK action but where there are simultaneous actions across Europe) is also now relevant. If progressing an action in the UK could promote settlement, this may be a factor in favour of resisting a stay. This will need to be assessed carefully. Parties will be reluctant to declare settlement prospects to the court in evidence on a stay application, so it is most likely to apply where, for example, the UK is the major European market and so an early decision in the UK could have an impact on the viability of proceeding in other jurisdictions.

Lastly, the relevance of timescales and the length of time taken by the EPO to reach a final decision is maintained but qualified. The question is now considered in conjunction with the prejudice which either party will suffer as a result of the delay. Without going into specifics, Floyd LJ indicated that long delays with little prejudice and short delays with strong prejudice will be relevant in addition to evidence of the likely timescale of the respective UK and EPO proceedings.

The Effect

The combined impact of the Virgin Case and the IPCom Case is a shift in approach of the UK courts. From being non-stayers, they will now, principally, be stayers. This will not only result in cases being stayed when they would not have before, but it will likely increase the number of requests from the parties involved. The effect will be that the time taken by the EPO to reach a final decision in opposition proceedings will be built into the timetable for a UK patent action where there is a co-pending opposition. For a claimant wishing to progress an action, the need to give an undertaking to repay any damages received is likely to become a standard requirement.