Comparison and interaction between EPO boards of appeal and national courts – state of play and solutions for the UPC
Chair: Sir Robin Jacob (GB)
Sir Richard ARNOLD
Judge, High Court Chancery Division
A patent held in a binding ruling to have been infringed is subsequently revoked: what happens next? National practice and what will the UPC do?
I. The position in the United Kingdom
The law in the United Kingdom on this question has changed as a result of the recent decision of the Supreme Court in Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd  UKSC 46,  AC 160.
The facts in the Virgin v Zodiac case were rather complicated and, in some respects, unusual. Virgin was the proprietor of European patent (UK) No. 1 495 908 granted on 30 May 2007. The patent described and claimed a seat which reclined to provide a flat bed for use in long-haul aircraft. Zodiac manufactured a seating unit called the Solar Eclipse which had been supplied to a number of international airlines.
On 30 July 2007 Virgin began proceedings against Zodiac in the High Court of England and Wales claiming an injunction and damages on the footing that its Solar Eclipse seats infringed the patent. Zodiac defended the action on the ground that its seats did not fall within the claims of the patent. But, it said, if the claims were wide enough to cover their seats, then the patent was invalid on account of prior art and for added matter.
On 29 February 2008 Zodiac opposed the patent in the EPO, along with a number of airlines who had bought its seats and were at risk of infringement proceedings if the patent was valid. Initially, no application was made for a stay of the English proceedings.
On 21 January 2009 the High Court (Lewison J) gave judgment in the English proceedings ( EWHC 26 (Pat),  ECDR 127) holding that Zodiac's Solar Eclipse seats did not infringe the patent. The judge recorded that, if the claims of the patent had been wide enough to cover Zodiac's seating system, he would have held it to be invalid for added matter. But he rejected every other ground of invalidity advanced. Virgin appealed against the decision on infringement, and Zodiac cross-appealed on validity.
On 31 March 2009 the Opposition Division of the EPO upheld the patent subject to minor amendments. Zodiac and the other opponents immediately indicated their intention to appeal to the Technical Board of Appeal. This gave rise to correspondence between the parties' solicitors about what would happen if the English Court of Appeal held the patent to be valid, but the TBA later held it to be invalid in some relevant respect. Zodiac's solicitors proposed that the appeal should be stayed until the final determination of the opposition proceedings in the EPO. Virgin's solicitors refused to agree. They then wrote on the same day to the Court of Appeal informing them of the progress and likely course of the opposition proceedings, and summarising their correspondence with Zodiac's solicitors. On 12 May 2009 the Civil Appeals Office replied that
"Jacob LJ has directed that he will not grant a stay of proceedings at present, however, parties can apply for a stay following judgment in the Court of Appeal if it is still possibly relevant."
That direction was given without prior notice to either party and without inviting any observations from those acting for Zodiac.
On 22 October 2009 the Court of Appeal (Jacob LJ, Patten LJ and Kitchin J) gave judgment ( EWCA Civ 1062,  RPC 192) allowing Virgin's appeal on infringement, but dismissing Zodiac's appeal on validity and thus holding the patent to have been valid and infringed. Zodiac then applied for a stay of the order, as apparently envisaged in Jacob LJ's direction of 12 May 2009, pending the conclusion of the opposition proceedings in the EPO. On 21 December 2009 the Court of Appeal refused the application ( EWCA Civ 1513,  FSR 396). The main ground on which it refused the application was that it was pointless to stay the order on the appeal, because the effect of the decision of the Court of Appeal in Unilin BV v Berry Floor NV  EWCA Civ 364,  FSR 25 was that any later decision of the TBA revoking the patent would make no difference since the decision of the Court of Appeal would bind the parties per rem judicatam. On 12 January 2010, the Court of Appeal sealed an order making a declaration that the patent was valid and infringed, granting an injunction to restrain further infringement of the patent and directing an inquiry as to damages for past infringement. The injunction was qualified so as to allow the delivery of seats to Delta under an existing contract, on Zodiac undertaking to pay £10 000 to Virgin for each seat delivered, but otherwise covered all future infringements.
At this stage, the hearing before the TBA was due to take place on 20 April 2010. In the event, however, this was postponed to 9 September 2010 as a result of the disruption of flights following the eruption of the Eyjafjalajökull volcano in Iceland. When the adjourned date came, the TBA varied the decision of the Opposition Division. They held that all the claims found in England to have been infringed were invalid, but upheld the validity of the patent in amended form. By that time, however, the Supreme Court had refused Zodiac permission to appeal against the Court of Appeal's decision.
As a result of the TBA's decision, further applications were made by Zodiac to the Court of Appeal to discharge the injunction and to vary the Court of Appeal's order in a number of other respects. The injunction was discharged by consent on 1 December 2010. The other variations sought by Zodiac were: (i) the replacement of the declarations made by new declarations making it clear that the patent held to be valid was the unamended patent; (ii) the discharge of the order for delivery up of the allegedly infringing articles; (iii) the discharge of the order for an inquiry as to damages; and (iv) the release of Zodiac from its undertaking to pay £10 000 per seat delivered to Delta and the repayment of £3 600 000 already paid under it.
On 23 February 2011 the Court of Appeal (Smith, Jacob and Patten LJJ) held ( EWCA Civ 163,  FSR 27) that: (i) the declaration would not be varied; (ii) the order for delivery up would be discharged because it was redundant in the light of the amendment of the patent; (iii) the order for an inquiry as to damages would stand, because it was no more than the mechanism for working out the effect of the Court of Appeal's decision that the patent was valid and had been infringed, and that decision was res judicata; and (iv) the £3 600 000 was not repayable because it was an advance referable to (among other things) the damages to be assessed in the inquiry. Virgin subsequently claimed damages of at least £49 million in the inquiry.
In the meantime Virgin had brought three actions in the High Court against customers who had bought and were using Zodiac's seating units, actions to which Zodiac were also joined. In these actions Virgin contended that the Solar Eclipse seats infringed the amended patent. On 27 July 2012 the High Court (Floyd J, as he then was) held that the Solar Eclipse seats did not infringe the amended patent: Virgin Atlantic Airways Ltd v Jet Airways Ltd  EWHC 2153 (Pat),  RPC 10. (After the decision of the Supreme Court, Floyd J's judgment was upheld by the Court of Appeal:  EWCA Civ 1713.)
Zodiac appealed to the Supreme Court against the decision of the Court of Appeal dated 23 February 2011.
The Supreme Court unanimously allowed Zodiac's appeal, and held that Zodiac was entitled to rely upon the fact that the form of the patent which the Court of Appeal had held that Zodiac had infringed had subsequently been held invalid by the TBA as an answer to Virgin's claim for damages for infringement. In summary, the Supreme Court's reasoning was as follows. The effect of Article 68 of the European Patent Convention was that the revocation or amendment of a patent applied retrospectively back to the date of grant. Furthermore, it was a decision in rem, not limited to the particular parties, but determining the status of the patent as against the world, and entitling everyone to conduct their affairs as though the unamended patent had never existed. The doctrine of res judicata, although barring Zodiac from relying on arguments relating to validity or infringement of the unamended patent which had been determined adversely to it by the Court of Appeal, did not prevent Zodiac from asserting that the patent had been amended after that decision as part of its defence on the inquiry as to damages. The fact that the patent had been amended by the TBA was a fact which had arisen subsequently, and therefore could not have been relied upon by Zodiac at the time of that decision. Furthermore, it was a fact which was both indisputable and crucially important. Zodiac, in relying on that fact, made no challenge to the conclusions reached by the Court of Appeal with regard to the unamended patent and did not seek to re-litigate a point which that court had already determined. Rather, Zodiac relied on the consequence that the claims which the Court of Appeal had held to have been infringed were now deemed never to have existed.
In so holding, the Supreme Court overruled three earlier decisions of the Court of Appeal: Poulton v Adjustable Cover and Boiler Block Co  2 Ch 430; Coflexip SA v Stolt Offshore MS Ltd (No. 2)  EWCA Civ 213,  FSR 34; and Unilin v Berry.
The decision leaves open three questions. The first is what happens if the defendant has already paid the damages to the patentee by the date the patent is revoked or amended. Although the Supreme Court touched on this question, it expressed no concluded view on it. The second question is the extent to which it is open to a defendant who has been found to have infringed a patent after having unsuccessfully challenged the validity of the patent subsequently to bring revocation proceedings in respect of the same patent. Clearly the defendant cannot re-argue the same grounds of invalidity. But can the defendant rely upon new grounds, such as new prior art? The effect of the Supreme Court's decision on this question is unclear, but the answer may be that it will depend on whether the defendant could have discovered the new prior art during the course of the previous proceedings with the exercise of reasonable diligence. The third question is whether, if the defendant cannot attack the patent again on new grounds (e.g. because it did not exercise reasonable diligence), it can legitimately procure a third party to do so.
II. What will the UPC do?
The effect of a subsequent revocation of the patent upon an earlier binding ruling of infringement will clearly be an issue for decision by the UPC in due course, and nothing in this paper is intended to pre-judge that issue. The following observations about the nature of the problem may be made, however.
No provision in Regulation 1257/2012/EU, the UPC Agreement, the Statute or the Rules of Procedure directly addresses this issue. There are only three provisions which appear to be relevant. The first is Article 65(4) of the UPC Agreement, which provides:
"To the extent that a patent has been revoked it shall be deemed not to have had, from the outset, the effect specified in Articles 64 and 67 of the EPC."
This provision, which corresponds to Article 68 EPC, could be relied upon as founding the same reasoning as that adopted by the Supreme Court in Virgin v Zodiac.
The second is the following sentence in Rule 354(4) of the Rules of Procedure (16th draft), which provides:
"Where an enforceable decision or order has been made pursuant to a finding of infringement of a patent, and, following the conclusion of the action, the patent is amended or revoked, the Court may order, upon the request of the party against whom the decision or order would be enforceable, that the decision or order cease to be enforceable." [ 1 ]
This provision apparently gives the UPC a discretion to order that an order is no longer enforceable. Thus an injunction could be lifted. But it does not empower the UPC to reverse orders which have already been enforced. Furthermore, it is not clear that the UPC could use this procedural discretion to override the res judicata effect of an earlier decision as to the validity of the patent.
The third is Rule 362 of the Rules of Procedure (16th draft), which provides:
"The Court may at any time, on the application of a party or of its own motion, after giving the parties an opportunity to be heard, decide that there exists an absolute bar to proceeding with an action, for example because of the application of the principle of res judicata." [ 2 ]
This provision recognises the existence of the principle of res judicata. But it begs the question of what law is applicable to the question of the res judicata effect of a previous ruling. Is this European Union law or is it national law, and if the latter, is the national law to be determined by Article 5(3) of Regulation 1257/2012/EU or in accordance with Article 24(2) of the UPC Agreement?
Finally, as indicated in Virgin v Zodiac, the answer may depend on whether there is only an order that the defendant should pay damages to be assessed or whether the defendant has already paid the damages. In the latter case, the defendant may have to bring a claim for restitution, which the UPC would presumably not have competence to entertain under Article 32(1) of the UPC Agreement.