When to stay and when to go? Court of Appeal recasts Glaxo guidelines in HTC appeal

21 November 2013

Since the judgment of the Supreme Court in Virgin v Zodiac, the patent world has been waiting on tenterhooks to see how the Court of Appeal would answer the call from the Supreme Court judges to recast the Glaxo guidelines on the question of when a stay of UK proceedings should be granted while European Patent Office proceedings are alive.

Today saw the Court of Appeal give judgment in the "stay" application in the long-running patent dispute between IPCom and HTC. HTC had appealed the High Court's refusal to stay the proceedings, and the appeal concerned the circumstances in which it is appropriate for an English court considering combined patent infringement and revocation proceedings to grant a stay pending the outcome of co-pending opposition proceedings in the European Patent Office (EPO).

The decision has been eagerly awaited as the first decision on the point since the Supreme Court's suggestion in its Virgin v Zodiac judgment that the lower courts must revisit the Glaxo guidelines for when UK actions should be stayed pending the outcome of EPO opposition proceedings.

In dismissing the appeal, the Court of Appeal has taken up the mantle and recast the Glaxo guidelines, rewriting some points and adding others. The previous nine guidelines are replaced with 13. Notably, the reworked guidelines make clear that, if there are no other factors, a stay of the national proceedings is the default option - and it is for the party resisting the stay to show why it should not be granted. Parties who oppose a stay but still want to seek damages should be prepared to undertake to repay those damages on resolution of the EPO proceedings.

In the appeal, which was heard by the Court of Appeal on 29 October, Lord Justice Floyd gave the lead judgment which included detailed consideration of the Glaxo guidelines. Having reconsidered and recast those guidelines, the Court of Appeal ultimately dismissed HTC's appeal. It found that Mr Justice Roth's decision not to order a stay of the technical case was an entirely proper exercise of the Patents Court's discretion.

In particular, Floyd LJ considered the idea of irrevocable benefit potentially being obtained if damages were awarded nationally and paid before validity proceedings before the EPO were resolved. IPCom had offered an undertaking to repay any such damages if the patent was invalid, so had mitigated against this risk.

As part of benefitting from a multi-tiered patent system, whereby questions of patent validity can be raised in the English courts and the European Patent Office (EPO). simultaneously, there is obvious potential for a duplication of effort. This has led to questions being asked as to when the English court should await a decision of the EPO.

Until recently, the relevant guidance was the so-called 'Glaxo guidelines" as set out in Glaxo Group v Genentech [2008] EWCA Civ 23 at 79-88. This gave nine points of guidance. Wide discretion was to be exercised about whether to stay proceedings to achieve the balance of justice having regard to all the circumstances. The factor usually carrying most weight was the length of time for the respective proceedings to achieve some certainty on validity of the patent.

The effect of the guidance was that the English court should normally refuse a stay of its own proceedings if it would be likely to resolve the question of validity significantly earlier.

More recently, the Supreme Court, in Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd [2013] UKSC 46, firmly invited the lower courts to reconsider the Glaxo guidelines. Although the Supreme Court allowed the appeal and declared that Zodiac was entitled to rely on the amendment of Virgin's patent in answer to their claim for damages on the inquiry, it was very aware of the procedural implications had its decision been different.

Lord Sumption, who gave the lead judgment, hypothesised that, had he concluded that the defendant was estopped from relying on the revocation or amendment of the patent once the court has adjudged it to be valid, it would "have been essential to stay the English proceedings so that the decision of the EPO would not be rendered nugatory by the operation of the law res judicata".

That clearly would not sit easily with the Glaxo guidelines which, if followed, would have meant the English court would have refused to stay its own proceedings pending the EPO decision. Lord Sumption considered that the effect of the Glaxo guidelines was to "put more litigants in the impossible situation" in which successive decisions of the Court of Appeal placed the parties in Virgin v Zodiac.

He noted that the problem is aggravated by the fact a decision of the English court on validity is directly effective only in the UK, whereas the EPO's decision is directly effective in every country in which the patent is in force. He also noted that even if EPO opposition proceedings are concluded in time to affect English proceedings, the uncertainty and waste of costs involved "do little credit to our procedures".

He therefore advocated that the Glaxo guidelines should be re-examined. The first opportunity for the lower courts to take up this request was in the appeal of HTC's application in its dispute with IPCom. This was an appeal from the decision of Mr Justice Roth to decline to order a stay of the trial of the "technical issues" in the case, pending final determination of validity proceedings of the patent before the EPO in opposition proceedings brought by Nokia.

HTC's application for a stay

The history of the dispute between HTC and IPCom which is the subject of today's judgment is complex, and this summary can only give the headlines. Importantly for the reassessment of the Glaxo guidelines, however, the English and EPO proceedings were running along conflicting paths.

IPCom had brought proceedings against HTC in respect of a patent for use in mobile telephones (for controlling access to the Random Access Channel between mobile phones and a network base station). HTC denied infringement and sought to revoke the patent, and directions were given in January 2011 for the trial to commence in February 2013.

To complicate matters, IPCom's claim against HTC was triggered by its success in on-going proceedings with Nokia in respect of the same patent. Nokia had sought to revoke the patent but Mr Justice Floyd (as he then was) found the patent to be valid in amended form in June 2011, and was upheld by the Court of Appeal in May 2012.

Meanwhile, the EPO had reached different conclusions in respect of Nokia's opposition of the same patent. In April 2012, the Opposition Division in the EPO revoked the patent on the ground of added matter. IPCom appealed that decision to the EPO's Technical Board of Appeal (TBA), and, as a result of the appeal, revocation was suspended.

Following the EPO decision in April 2012, HTC sought to stay the hearing of the trial on "technical issues" of invalidity, essentiality and infringement relating to the UK designation of the patent until the final determination of validity proceedings of the European patent before the EPO. (The inquiry as to what would be fair, reasonable and non-discriminatory terms for a licence should HTC be held to infringe was, however, to be heard with the Nokia FRAND inquiry.)

Mr Justice Roth declined HTC's application for a stay in June 2013. In exercising his discretion as to whether to stay proceedings in national courts, he considered the Glaxo guidelines as they then stood.

Roth J considered that a stay would realistically have involved waiting for two levels of decision in the EPO, as even HTC accepted that an appeal of any decision would be likely. Therefore, even on an accelerated procedure it would take a further 14–20 months until the determination of such an appeal.

Roth J also considered that where a patentee's whole business is based on the exploitation of its patents, extended uncertainty over a patent's validity is likely to be of significant consequence. Applying the guidelines, the risk of inconsistent outcomes is not in itself sufficient justification for a stay.

HTC appealed the decision, and the appeal was heard by the Court of Appeal on 29 October.

The new guidelines

Lord Justice Floyd, who gave the lead judgment, has recast the guidelines (at paragraph 68 of the judgment). The list has grown from 9 to 13 guidelines but remains largely unchanged at its core.

A summary of the new guidelines follows:

  1. This remains as before: discretion whether to stay proceedings should be exercised to achieve the balance of justice between the parties having regard to all the relevant circumstances. That discretion is very wide.
  2. This guideline remains unchanged: discretion belongs to the Patents Court, not the Court of Appeal. The Court of Appeal should not interfere with the Patents Court's decision unless doing so accords with legal principle, taking into account the relevant circumstances.
  3. This guideline remains unchanged: although neither the European Patent Convention (EPC) nor the Patents Act 1977 contain express provisions on discretion to grant stays, they do provide the context for the exercise of that discretion.
  4. This guideline remains unchanged: it is an inherent characteristic of the EPC that proceedings contesting validity of a European patent may be duplicated in national courts. It is also restated that the national courts continue to have exclusive jurisdiction on infringement issues.
  5. This is a new guideline emphasising clearly that a stay of national proceedings is the default position if there are no other factors.
  6. This guideline adds that it is for a party resisting the grant of a stay to show why it should not be granted. The ultimate question is where the balance of justice lies.
  7. This recasts the old guideline 5 and emphasises that whether a refusal of a stay will irrevocably deprive a party of any benefit that the concurrent jurisdiction of the national courts and the EPO was intended to confer is an important factor. If national proceedings were to continue and a patentee could obtain monetary compensation which would not be repayable if the patent is subsequently revoked, then this would be a weighty factor in favour of granting a stay. Floyd LJ then confirms that this could be mitigated by an undertaking being offered. He is continuing the Glaxoapproach of seeking a half-way house between commercial certainty and preservation of the value of EPO revocation proceedings, while offering a practical solution to navigate this tricky conflict.
  8. This restates old guideline 7 that, where some commercial certainty would be achieved at a considerably earlier date by national proceedings than by the European proceedings, a Patents Court judge is entitled to refuse a stay of national proceedings. Ultimately this is summarised that certainty sooner somewhere is preferable than continuing uncertainty everywhere. Throughout his judgment, Floyd LJ is quick to praise the success of the EPO, but is also critical that the slowness of its proceedings cannot meet the needs of industry, that being commercial certainty.
  9. This returns to an idea pervading throughout Lord Justice Floyd's judgment and adds that it can be a relevant factor that settlement may be promoted by national proceedings continuing and deciding at least some of the issues in dispute.
  10. This confirms that the length of time it would take the EPO to resolve proceedings is relevant. But it emphasises that this should be considered in conjunction with other factors. In particular, such factors include any prejudice a party will suffer and balancing a continued lack of certainty versus the certainty that national proceedings can confer. This is a softening of old guideline 5 which stated that the length of delay of the EPO was the factor carrying most weight.
  11. This confirms the statement in old guideline 5 that the public interest lies in dispelling the uncertainty of the extent of monopoly granted by the patent.
  12. This confirms old guideline 9 that account should be taken of the risk of wasted costs by having concurrent proceedings, but this is generally outweighed by other factors.
  13. This confirms the approach of the latter half of old guideline 9 that the judge should consider parties' assertions critically and at a high level of generality. A stronger stance is now taken in that Floyd LJ expressly states the application hearing must not become a mini-trial. This also marks a retreat from the idea that old guideline 8 proposed that much weight should be given to assertions by a party that it has a good reason for resisting a stay.

Comment

Today's judgment is the first attempt by the Court of Appeal to address the need for a rethink of the guidance on when to stay proceedings, since the issue came to a head in the Virgin v Zodiac case. The decision is of interest to anyone involved in parallel EPO and English national proceedings, with a clear message that the default option is to stay the English proceedings. Nonetheless, with the essence of the guidelines remaining unchanged, it is likely the exercise of the court's discretion may still result in parties successfully resisting a stay.


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