Damages for infringement should be calculated on basis of amended not original patents, rules Supreme Court

The Supreme Court made its ruling in a case involving Virgin Atlantic Airways and Zodiac Seats. (30-page / 258KB PDF)

Virgin sought more than £49 million in damages from Zodiac over the infringement of a European patent it owned for a "seating system and passenger accommodation unit for a vehicle". However, Zodiac challenged whether it had to pay damages. It argued that a ruling by the European Patent Office (EPO) that resulted in Virgin's patent being amended meant that Virgin could no longer rely on the original patent when seeking payment of damages.

Virgin and Zodiac were engaged in two separate legal battles regarding Virgin's patent and Zodiac's 'Solar Eclipse' seats. Proceedings were fought out through the EPO and in the UK courts.

Patents granted by the EPO can be simultaneously challenged both in the UK courts and through opposition proceedings before the EPO. A decision on the validity of a European patent by the UK courts only has national effect, whilst a decision by the EPO has effect across all the nations in which the patent is in force. Parallel proceedings are often launched because it can often take five or six years to settle a case brought before the EPO, whilst UK court rulings can generally be obtained in under half the time. It is relatively unusual for UK proceedings to be halted to wait for an EPO ruling.

The UK Court of Appeal had ruled that Zodiac had infringed Virgin's patent, but an appeal board at the EPO subsequently ruled that the patent Virgin relied on would be invalid unless the company amended the patent claims. The resulting amendments meant that Zodiac could no longer be said to be infringing Virgin's rights, so Zodiac challenged whether it had to pay damages to the airline company for infringement.

Zodiac argued before the Court of Appeal that it should be the EPO's ruling, and not its previous decision on the case, which should be considered when it came to conducting an enquiry into damages. However, the Court of Appeal ruled that its own previous decision should stand because Zodiac was essentially asking it to re-visit a point that it had already decided the outcome of. The Court relied on previous case law dating back to 1908 when making its judgment.

However, the Supreme Court has now decided to overturn this finding on appeal.

"The Court of Appeal has determined in favour of Virgin issues essential to the existence of the cause of action for infringement of the unamended patent, which are the basis of the claim for damages," Lord Sumption said in the Supreme Court's ruling. "However, the point which Zodiac seek to make on the enquiry is that the unamended patent has been retrospectively amended. It no longer exists, and is deemed never to have existed, in the form on which these issues were adjudicated by the Court of Appeal."

"Zodiac’s reliance on the retrospective amendment is a new point which was not raised before. It could not have been raised before, because the decision of the [the EPO's appeal board] retrospectively amending the patent was made after the order giving effect to the judgment of the Court of Appeal," he said.

"There are two related reasons why Zodiac cannot be precluded from relying on the decision of the [the EPO's appeal board] on the enquiry as to damages. One is that they are relying on the more limited terms of a different patent which, by virtue of the decision of the [the EPO's appeal board], must at the time of the enquiry be treated as the only one that has ever existed. The other is that Zodiac are not seeking to reopen the question of validity determined by the Court of Appeal. The invalidity of the patent may be the reason why the [the EPO's appeal board]  amended the patent, but [Zodiac] is relying on the mere fact of amendment, not on the reasons why it happened," the judge added.

The amount of damages Zodiac is required to pay Virgin, if any, has still to be determined, but is expected to be minimal, if anything.

Patent law expert Adrian Murray of Pinsent Masons, the law firm behind Out-Law.com, said that the Supreme Court's ruling could change the practice of disputes over European patents running concurrently at the EPO and before the UK courts. Existing guidelines that govern current practices in this regard were criticised by the Supreme Court in this case.

Murray said that a longer wait for decisions could potentially prompt courts into awarding preliminary injunctions more frequently against alleged infringers.

"While the Supreme Court did not go so far as to stipulate what test should be applied when deciding whether to allow challenges to UK patents to proceed when those patents had already been challenged in opposition proceedings before the EPO, it was recommended that the UK High Court and Court of Appeal should re-examine existing practice," Murray said.

"In the event that the Court moves toward a situation in which UK proceedings are stayed pending resolution of invalidity disputes by the EPO, there will be a longer delay between infringement proceedings being brought before the UK Court and a final decision being taken. In such situations, patentees are likely to argue that if a defendant is allowed to continue their activities and the patent is found to be valid and infringed, the damage incurred by the patentee will be greater and more likely irreparable," he added.

"This argument may carry more weight and, in view of the longer period between initiation of proceedings and final decision, may tip the balance in terms of interim injunctions being awarded, meaning that the defendant is barred by the Court from marketing the allegedly infringing products until a final decision is taken," the expert said.