Category Archives: Legal Updates

What is a patent troll, and how can you defeat it?

trollWhen witnesses appear before committees of the British House of Commons, they are not told in advance what the questions will be. When IP Draughts and Dr Daniel Nelki of Wellcome Trust appeared before the Science and Technology Committee in December, we were not expecting to be asked “what is a patent troll?”, but we tried our best to answer the question.

IP Draughts burbled on for a while about non-practising entities, pointed out that universities fell within this description but should not usually be considered as trolls, and suggested that (a) it was a particular, aggressive way of pursuing patent litigation that was troll-like, rather than the assertion of patents per se; and (b) patent trolls were more of a US than a European phenomenom.

In IP Draughts’ understanding, though he is not a litigator and certainly not a US litigator, a number of factors create a favourable environment for patent trolls in the USA:

  1. The poor quality of some patents in the USA, which should not have been granted. These sometimes claim developments that are used widely across an industry, thereby creating a large pool of potential infringers.
  2. texas2The pro-patent bias of some courts in the USA; the United States District Court for the Eastern District of Texas is a particular favourite for patent owners. Or just a lack of understanding of patents in some non-specialist courts, which creates uncertainty of outcome of patent actions.
  3. The possibility of jury trials in patent cases, which also adds to uncertainty.
  4. The cost of litigation in the USA, partly as a result of very extensive discovery procedures.
  5. The absence of a general “loser pays” approach to legal costs (except in “exceptional” cases – see below). This reduces the risk to a patent owner who bring a speculative law suit; he won’t be hit with a large bill for the defendant’s legal costs if he loses the case.
  6. The availability of legal representation on a contingency fee basis, where the patent owner has no obligation to pay its lawyer’s legal costs other than a percentage of any damages that the owner wins in the litigation. This also reduces the risk to a patent owner who brings a speculative law suit.

These factors sometimes encourage patent owners to bring spurious claims, and make it easier for a defendant to pay a “nuisance value” amount to a patent owner rather than defend a patent claim, no matter how weak the patent.

reachOccasionally, IP Draughts’ UK clients have asked him about letters from US law firms asserting patents in terms that were considered troll-like. In one case, many years ago now, the patent was for a method of testing for a chemical compound. It was a US patent, probably weak, and the client was based in the UK so it was unlikely there would be any immediate infringement. However, the patent had broad claims that included products discovered using the testing method, known as reach-through claims. If these claims were upheld in relation to the client’s products, and if the products were sold in the USA as was hoped, the patent could have done significant harm to the client’s (future, hoped-for) business.

The client consulted specialist patent attorneys, who advised that the risk of infringement of a valid patent was low.

But how should the client respond to the US lawyer’s letter? The letter claimed that many companies in the industry had taken licences and that a good deal could be struck if the client responded promptly. It also claimed that the inventor (who had assigned the patent to a non-practising entity) was a US academic who was going to use the royalties for the benefit of science. This last part seemed designed to position the plaintiff as a “good guy” in any future jury trial.

In the end, the client decided to ignore the letter and subsequent follow-up letters and eventually the US law firm stopped writing. Perhaps a small biotech company in a foreign land was not the primary focus of the patent owner’s efforts.

An alternative approach to dealing with a non-practising entity is to stand up to it and devote resources to fighting any litigation. If you have enough money, and the right judge, this may work.

coteIt is heartening, in this context, to read the recent decision by Judge Denise Cote, of the United States District Court for the Southern District of New York, in the case of Gust, Inc v Alphacorp Ventures, LLC and Richard Suarez, of December 8, 2016, reported here.

Not only did the judge decide the patents were invalid, she awarded costs against both the patent owner and their lawyers. It seems from the report that the patent owner is unlikely to be able to pay the approximately $500,000 awarded to the defendant, so their attorneys may be forced to pick up the tab.

Her reasons for awarding costs, on an exceptional basis, included the fact that the patents were clearly invalid, and the aggressive way in which the patent owner, via his attorneys, had conducted the litigation. From a quick scan of the decision, this seems to have included:

  1. The patents claimed methods of raising money via crowdfunding, albeit dressed up as the use of software for this purpose.
  2. It was obvious in light of the Supreme Court’s 2014 decision in the Alice case that these patents claimed unpatentable material. The patent owner had “attempt[ed] to masquerade its otherwise abstract idea by highlighting allegedly ‘inventive’ elements… But these generic computer elements do not confer patent eligibility”.
  3. The case was initially brought in the Eastern District of Texas (and, according to a press report, a jury trial was sought) “a venue that bears no relationship to the parties or facts at issue in this case …further supports a finding of inappropriate motivation”.
  4. When the defendant managed to get the case transferred to New York, the patent owner tried to withdraw its case by providing a covenant not to sue (see article about that subject on this blog). However, the defendant didn’t accept that this brought the matter to an end.
  5. The patent owner, which was a non-practising entity, had pursued the case in an aggressive way despite acknowledging that it was “not worth litigating”. Its goal was “not to secure a reasonably royalty for infringement of a valid patent, but rather to extract a nuisance settlement …on the theory that Gust would rather pay an unjustified albeit minimal license fee than bear the costs of the threatened expensive litigation in a distant venue”.
  6. Awarding costs against the patent owner’s attorneys, the judge commented on the attorneys’ “bad faith motivation” in bringing the case in Texas, and conducting it in the way that they did.

Heady stuff. This is just one case, though according to the final paragraph of the judge’s Wikipedia entry she has form in awarding costs in patent cases. It will be interesting to see if other US judges follow this judge’s approach and make the USA a less attractive environment for non-practising entities bringing patent infringement actions.

3 Comments

Filed under Intellectual Property, Legal Updates

Jurisdiction clauses and Twenty20 vision

deccanThis is a sad tale about an international business venture. When the deal goes sour, and it is near impossible to recover the millions that you are owed (despite a court order in your favour), what should you do? Ah yes, sue the lawyer who advised you on the deal. He must have done something wrong, he has insurance and he is based in a jurisdiction where the legal system works.

Specifically in this case, what should your lawyer advise in relation to choice of jurisdiction in the contract? We now have some guidance from the Court of Appeal.

The case of Wright v Lewis Silkin LLP [2016] EWCA Civ 1308 (21 December 2016) was reported on BAILII this week. Mr Wright was advised by the well-known London law firm, Lewis Silkin, on a contract under which Wright was hired as the chief executive of an Indian company, Deccan Chargers Sporting Ventures Limited (DCSV). DCSV held the Hyderabad franchise of the Indian Premier League, which runs a Twenty20 cricket league across India. DCSV also had ambitious plans to create a “sports city” in India.

To err is human...

To err is human…

While this contract concerned an employment relationship, the same issue could easily have arisen in other types of international business contract, and would likely have been treated by the court in the same way.

The contract, described as Heads of Terms, included the following terms:

Severance Guarantee
In the event that TW’s employment is terminated by the Company (including as a result of a constructive dismissal) at any time, TW will receive the immediate payment (to include contractual notice entitlement and the value of then vested equity (“total package”)) of the higher of the then value of his total package or £10 million.
Law
These terms to be governed by English law.

The contract did not contain any clause stating which courts would have jurisdiction.

Later, Mr Wright was dismissed. He sued DCSV in the English courts. DCSV unsuccessfully challenged the jurisdiction of the English courts. There were other procedural difficulties. Eventually, the English High Court awarded Mr Wright the £10 million referred to above.

Mr Wright sought to enforce his award in the Indian courts, but the Indian courts are very overburdened with work. It is likely to take many years before he stands any chance of the Indian courts recognising and enforcing the English court decision.

So, he sued his solicitor. At trial he alleged that his solicitor should have advised on the following:

  1. To obtain a bank guarantee from the Indian party for the £10M.
  2. To include an exclusive English jurisdiction clause in the contract.

At trial, the judge rejected the bank guarantee point. Thank goodness! In IP Draughts’ view this was a commercially unrealistic argument, for the reasons stated at paragraph 38 of the Court of Appeal’s judgment.

On the second point, the trial judge found that the solicitor had not advised on jurisdiction and was in breach of duty for this failure.

The facts in relation to the second point are a little complicated, but can be summarised briefly as follows:

  • Mr Wright had been recommended to take business advice on the transaction from someone referred to by the parties as the “wise Indian”. The wise Indian had advised Mr Wright to ensure that disputes were resolved in England, “because …India very slow, no good, must be here”.
  • Mr Wright had wrongly assumed that the above-quoted reference to English law meant that disputes would automatically go to the English courts.
  • If the solicitor had advised on this point, he would have indicated, perfectly reasonably, there were pros and cons of including an exclusive jurisdiction clause.
  • But Mr Wright would probably have insisted on exclusive English jurisdiction in light of the wise Indian’s advice.
  • A first action was brought in the English courts for the £10M but was abandoned after DCSV challenged jurisdiction.
  • A second action was brought in the English courts and was successful (as mentioned above), despite a further challenge to jurisdiction.
  • Mr Wright argued that if he had been successful in the first action, he would have been able to bring pressure on DCSV to pay up at an earlier time. At that earlier time, DCSV was a thriving business and would not have wanted to prejudice its business by resisting payment. However, DCSV’s circumstances had changed by the time of the award of damages under the second action. It lost its franchise for Hyderabad in 2012.
  • The trial judge (in the negligence action) held there was a 20% chance that DCSV would have paid up voluntarily if the first action had been successful, and therefore held that the solicitor’s firm was liable for 20% of the £10M judgment debt, ie £2M. There were also some wasted costs in relation to the first action, of a few tens of thousands, for which the solicitor’s firm was liable.

jacksonJackson LJ, a very senior English judge, gave the lead judgment in the Court of Appeal. He dismissed the appeal on the bank guarantee point.

On the jurisdiction clause point, Jackson LJ accepted the trial judge’s view that there was a 20% chance of Mr Wright having recovered his judgment debt if the first action had proceeded. However, he disagreed with the trial judge on whether the £2M was recoverable.

Citing the Court of Appeal case of Wellesley Partners LLP v Withers LLP [2015] EWCA Civ 1146; [2016] Ch 529, he held that where a solicitor owes duties concurrently in contract and in tort, the test for recovering damages should be the contractual one. Applying the principles set out in Hadley v Baxendale and subsequent English cases, he considered that the £2M damages were too remote to be recoverable, in that a reasonable person would not have had damage of that kind in mind as “not unlikely to result from the breach”. [Apologies for the double negative.]

Thus, the solicitor’s firm, Lewis Silkin LLP, was only liable for the approximately £40,000 of wasted costs that had been incurred as a result of abandoning one action and starting another.

Instinctively, this decision feels right. Mr Wright wanted English jurisdiction and he got it, despite the absence of a clause that said so. If DCSV’s challenge to English jurisdiction had been successful, a more predictable loss might have occurred. There was a risk that DCSV would have refused to include an exclusive jurisdiction clause, if asked. Litigation involves all kinds of delays. It would have been difficult to predict, at the time the contract was made, that a delay in enforcement of several months would make it much less likely that DCSV would voluntarily honour an English judgment.

This judgment prompts several thoughts for IP Draughts:

  1. Non-lawyers sometimes need to be reminded that choice of law and choice of jurisdiction are distinct points.
  2. In many or most cases, it is desirable to have both a choice of law and a choice of jurisdiction clause in the contract.
  3. It is good to get a judgment from a respected court. But if the defendant has no assets in that jurisdiction, enforcement will need to take place in the defendant’s home jurisdiction (assuming he has assets there). Is it better to get a judgment in the same court that will enforce the award? Perhaps not, as in this case.  A court decision in India would likely have taken many years as well.
  4. Even if there is no perfect solution, it is better to discuss the issue with the client and decide on something than overlook the point.

withersThe point about concurrent liability in contract and tort is an interesting one, which also arises in the context of warranties. Where a party “represents and warrants” that a fact is true, some lawyers consider that this gives the recipient of the promise a right to sue in contract or for misrepresentation (ie in tort). IP Draughts has never been comfortable with this idea, and sees little in the case law to support it, though there have been several obiter dicta. He wonders whether the principle in Wellesley v Withers points us in the opposite direction, ie that in such a situation the contractual test for damages is the one to apply. In the words of Floyd LJ in that case:

Nevertheless, I am persuaded that where, as in the present case, contractual and tortious duties to take care in carrying out instructions exist side by side, the test for recoverability of damage for economic loss should be the same, and should be the contractual one. The basis for the formulation of the remoteness test adopted in contract is that the parties have the opportunity to draw special circumstances to each other’s attention at the time of formation of the contract. Whether or not one calls it an implied term of the contract, there exists the opportunity for consensus between the parties, as to the type of damage (both in terms of its likelihood and type) for which it will be able to hold the other responsible. The parties are assumed to be contracting on the basis that liability will be confined to damage of the kind which is in their reasonable contemplation. It makes no sense at all for the existence of the concurrent duty in tort to upset this consensus, particularly given that the tortious duty arises out of the same assumption of responsibility as exists under the contract.

 

9 Comments

Filed under Contract drafting, Legal Updates

International IP transactions and the effect of local laws

Litigating IP rights is such tiring work!

Litigating IP rights is such tiring work!

You have entered into an IP agreement that applies worldwide. It might be a licence agreement in which the licensed territory is all countries of the world. Or it might be an assignment of all of your IP, in all countries of the world.

The parties have agreed the law and jurisdiction of the contract. For present purposes, let us say that English law is to govern it, and that the English courts have exclusive jurisdiction. But the issues mentioned below are likely to apply irrespective of which law and jurisdiction are chosen.

The contract addresses IP-related issues in each country of the world. Take the example of an exclusive licence agreement that includes a term stating that the licensee can sub-license its rights. To what extent will this term override provisions of national IP law that state whether a licensee is permittee to sub-license?

As far as IP Draughts is aware (but he hasn’t done any worldwide research), on this point national IP laws may provide a fall-back position if the contract is non-specific on the issue, but they tend not to be prescriptive in the sense of overriding what the parties have agreed. For example, section 30(4)(a) of the UK Patents Act 1977 provides:

to the extent that the licence so provides, a sub-licence may be granted under any such licence and any such licence or sub-licence may be assigned or mortgaged

This suggests that, in the absence of a provision in the head licence agreement that permits sub-licensing, sub-licensing is not allowed.

Some years ago, when we wrote our loose-leaf work on agreements in the pharmaceutical sector, our German-law contributor included the following comment as a footnote in the licence agreement template:

Under German law, the right to grant sub-licences in case of an exclusive licence follows by law. Thus the parties need to explicitly exclude such right if desired.

IP Draughts suspects that, in most cases, national IP laws on the interpretation of an IP agreement will not override terms that the parties have expressly agreed in their contract.

If we broaden the subject from IP laws affecting the interpretation of IP agreements, to IP laws more generally, can we still assume that the terms of the contract override national IP laws? Probably not. For example, an IP agreement made under English law might state that the licensee can sue infringers. National IP laws may not allow the licensee to bring an action in its own name. Should the agreement be interpreted as requiring the IP owner to sue an infringer on behalf of the licensee in those countries where a licensee lacks locus standi to sue in its own name? IP Draughts cannot offer any universal answer to this question. It may depend on how the court interprets the contract. And even if the English court (in the above example) says that the answer to this question is yes, how enforceable will this decision be in the jurisdiction where the action is to be brought?

lex luthor

lex luthor

This type of question has long troubled IP Draughts, and he regrets that he didn’t take a course in conflict of laws at university. When, occasionally, he scratches the surface of this subject, he sees the liberal use of Latin expressions such as lex situs and lex fori, realises how dry and complicated the subject is, and leaves detailed study for another day. Even apparently helpful documents that seem to be directly on point, such as this one, cause him mild panic.

It was with mixed feelings, therefore, that IP Draughts read last week’s judgment by Arnold J in the case of Gloucester Place Music Ltd v Le Bon & Ors [2016] EWHC 3091 (Ch) (02 December 2016).

Readers may have seen reports in the national press about this case, and the dissatisfaction of the defendants with the outcome. Boiling it down to its essentials:

  1. The defendants are the members of the 1980s pop group, Duran Duran, and their service companies.
  2. In the 1980s they made an outright assignment of the worldwide IP in their songs to the claimant, a UK company, in return for payments including royalties. The agreements were all made under English law and were subject to the jurisdiction of the English courts.
  3. The assignment was very broad in scope (and used excruciating language, but that is a discussion for another day).
  4. US copyright law (section 203 of the US Copyright Act 1976) allows authors who have assigned their copyright to reclaim it after, typically, 35 years, by serving notice on the assignee. Section 203(5) provides: “Termination of the [assignment] may be effected notwithstanding any agreement to the contrary…”
  5. The defendants have served notices under section 203 on the claimant.
  6. The claimant sought and won a declaration in the English High Court that by serving such notices the defendants are in breach of their contracts with the claimant under which the IP was originally assigned.

The judge managed to use another Latin expression from the conflict-of-laws dictionary, namely lex loci protectionis. Applying English law principles of interpretation he concluded, “not without hesitation”, that he should give effect to the assignment as written, and should not make it subject to the rights given to authors by US copyright law to claim, in effect, a reversionary interest in the copyright.

This brief report omits mention of a number of other issues that the judge considered, including the fact that neither party provided expert evidence from a US lawyer.

IP Draughts hopes that this dispute will be appealed to the UK Supreme Court, so that we can get some guidance from Lord Neuberger and his colleagues on the interplay of national IP laws and IP contracts made under another law. Dare he say it aloud, but he would find this a far more interesting subject on which to get the Supreme Court’s ruling than whether the Prime Minister is required to introduce a Parliamentary Bill (which will almost certainly be approved by the House of Commons) before giving notice under Article 50 to leave the European Union.

 

4 Comments

Filed under Intellectual Property, Legal practice, Legal Updates

IP threats in the House of Lords

hl-committeeThis weekend, IP Draughts has a note from the school doctor: he is excused long runs, contact sports or blogging. He has to prepare for what may be a once-in-a-lifetime event, namely appearing as a witness before a House of Lords committee next Monday afternoon.

The committee is known as a Public Bill Committee, and has been convened as part of the passage of the Intellectual Property (Unjustified Threats) Bill through Parliament. It is chaired by Lord Saville, a retired Supreme Court justice. Previous witnesses to have appeared before this committee include Baroness Neville-Rolfe, the IP Minister, Sir Robin Jacob and Sir Colin Birss.

The committee hearing, which will be taking place on Monday 24 October at about 3.30 pm, is recorded on camera, live-streamed and saved on the UK Parliament website, so if you are a glutton for legal minutiae feel free to stop by. Details of the hearing can be found on the Parliament website here. IP Draughts believes the streaming will be accessible here.

IP Draughts will be giving oral evidence as chairman of the Law Society’s Intellectual Property Law Committee. Also giving evidence will be fellow IPLC member, Matthew Harris, and Vicki Salmon, representing the Chartered Institute of Patent Attorneys.

Now IP Draughts has to do some homework, and prepare for some difficult questions from Baroness Bowles, who is a member of the committee and a patent attorney, possibly the only patent attorney in Parliament.

 

Leave a comment

Filed under Intellectual Property, Legal policy, Legal Updates, News