What to do when faced with a law suit for patent infringement

In this article, we look at what action you need to take when faced with the threat of legal action in a patent infringement claim.

There are cost-effective ways of dealing with patent infringement

There are cost-effective ways of dealing with patent infringement

The world of patents and intellectual property can be a minefield for any business. Fraught with complex regulation and a mountain of legislation, small and medium-sized companies (without the luxury of having an in-house legal team) can be forgiven for allowing these vital areas to fall to the wayside. However, it is perhaps more important now than ever to start paying more attention to your IP position. There are numerous reasons for this but this article will look at what to do when faced with the threat of legal action in a patent infringement claim.

It is no secret that litigation can be a very costly affair, particularly for the defendant if they eventually lose the case, which is why many companies seek to settle out of court. This has led to the rise of a new breed of entities popping up and buying patents around the world from companies needing a cash injection or going in to administration. The global economic crisis of the past ten years has exacerbated the situation and allowed a number of portfolios to become available for the opportunists to snap up.

Let’s look at the recent case of British Gas Vs MeterTech and VanClare. The Judgment was handed down on September 16th and makes for interesting reading (if you’re into that sort of thing!) with an interim costs judgement on September 26th. Without going in to too much detail, British Gas was able to defend a £30 million infringement claim filed by MeterTech and VanClare relating to past, current and proposed smart meter systems. The original patent that was being disputed over was bought by the US entity VanClare, along with a number of others for a mere £160,000 from administrators after the former owner, Cheshire-based Secure Electrans Limited, filed for bankruptcy in 2014. VanClare subsequently licensed the patent exclusively to MeterTech who claimed that the infringement was significant as it ‘potentially affects, among other things, a £600 million contract for the installation of up to 16,000,000 smart meters throughout the UK’.

What is particularly interesting with this case is that the commercial value asserted related primarily to future infringement by virtue of planned participation in a complex standard for Smart Metering. To try to simplify matters and reduce costs, British Gas tried to have validity determined first as a simple issue but the claimants insisted on having a full High Court trial of all issues together. Originally, British Gas had filed a claim in the Intellectual Property Enterprise Court (IPEC – a forum designed to deal expeditiously with smaller actions) to revoke the patent under grounds of invalidity. The claimants then filed in the High Court a claim for infringement and asked to join both cases.

It is normal in major cases to hear infringement and validity together and it was decided that both cases should be heard together in the High Court as it was not apparent that the IPEC case would be heard any sooner. British Gas could hardly argue that it could not afford to defend a case in the High Court nor did we have evidence at the time that the case would turn out to be so exceptional that it justified departing from the normal rule.

Now, while British Gas could not and did not plead poverty, had the defendant been an SME, the court may have been more sympathetic vis-à-vis the potential High Court litigation costs and we may well have been able to dispose of the action for a fraction of the final cost at the IPEC.

Moreover, although the claimants were in this case allowed to run their case in the High Court as they chose, with multiple changes of tack and keeping a number of elements up their sleeve until the last minute, British Gas was awarded 75 per cent of their costs (and 70 per cent up front as an interim payment). The result is that running a much more expensive case than the simple trial of validity British Gas originally suggested has ultimately left the claimants very significantly out of pocket.

When we launched the revocation action in IPEC we advised British Gas that, due to the IPEC cost caps and the importance of the matter, we would probably end up spending significantly more than we would recover but we thought it would help to try to have the IPEC structure imposed on the matter. Now, ironically as a result of the claimant insisting on a High Court trial, British Gas has been able to recover a higher proportion of costs. Whilst there was still a net cost of defending the action, overall this can be seen as a vindication of the UK system of costs awards at least not rewarding unnecessarily complex litigation.

As for the detail of the litigation, it turned on whether the patent was obvious. The claimants for most of the trial did not admit that such things as using a database, using wireless communication, using digital cellular communication, using a meter serial number to identify a meter were part of the common general knowledge. These ultimately fell away. The judge notably remarked that the notional skilled person ‘is not devoid of common sense’.

So, the moral of the story: If you find yourself threatened with a potentially expensive law suit for patent infringement do not despair. We are not saying that it should not be taken seriously, but there are cost-effective ways of dealing with the issue, and cost consequences for those seeking to assert invalid patents. A pragmatic commercial settlement is often achievable if all parties are realistic in their expectations.

Ilya Kazi is a partner at Mathys & Squire

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