A costly administrative error: the Virgin v Zodiac case and Spain's challenge to the unitary patent system

14 January 2014

Last month, the Court of Appeal gave judgment in the long-running patent infringement dispute between Virgin Atlantic Airways (Virgin) and Zodiac Seats. Our IP experts examine the ruling.

Ultimately Virgin's bid to overturn Floyd J's (as he then was) judgment failed, with the Court of Appeal upholding the judgment and finding that the patents in suit had not been infringed (albeit one of the patents, subsequently held invalid by the Opposition Division, was found to infringe on a quia timet basis). So, after seven years of litigation, Virgin have ended up with nothing except a huge bill for their own, and Zodiac's, costs.

However, in addition to arguing that one of the patents in suit was not infringed, Zodiac Seats also asserted that it had been granted by mistake and invited the UK courts to hold that it could not be enforced by Virgin.

The issue arose due to an administrative error. Virgin, when applying for the patent in suit, EP 1,495,908 did not designate the UK. However, the Examining Division subsequently mistakenly designated the UK. Virgin then sought to enforce the patent in the UK against Zodiac Seats and its customers, Delta Air Lines, Air Canada and Jet.

In its detailed judgment, the Court of Appeal concluded that it did not have jurisdiction to review the administrative decisions of the European Patent Office (EPO). This administrative mistake resulted in six years' litigation (before the High Court and Court of Appeal twice and Supreme Court once) and a claim for up to £49 million.

Though the claim was unsuccessful, the refusal of the UK Courts to review administrative decisions of the EPO brings into stark relief Spain's current petition to the Court of Justice of the European Union (CJEU).

Background of Zodiac v Virgin

In April 2004, Virgin filed a divisional application, subsequently granted as EP 1,495,908. On the application form, Form 1001E, it listed the states for which it intended to pay fees, omitting the UK. The form also contained a note stating:

"Re item 6-1: GB is expressly NOT designated in this application. Apart from GB, all other EPC contracting states which were designated in [the parent application] are designated in this application." (Virgin's emphasis.)

Giving judgment at first instance, Floyd J (as he then was) said of this that "[t]he desire not to designate GB at all, or to countermand immediately the mandatory designation, could scarcely have been clearer."

In January 2005, EP 1,495,908 was published. The application, due to the administrative error, stated that the UK was designated.

Meanwhile, during the course of the prosecution of a UK national patent filed from the same PCT application as EP 1,495,908, the UK Intellectual Property Office wrote to Virgin raising concerns that there would be double-patenting between EP 1,495,908 and the UK national patent. In November 2005, Virgin wrote to the UK Intellectual Property Office stating that it would withdraw the UK designation. However, it did not do so.

After Virgin commenced patent infringement proceedings in the UK against Zodiac Seats, the latter's then group company filed an opposition before the EPO. This included a request to correct the Examining Division's mistaken designation of the UK. In February 2009, the Opposition Division noted that it had referred the request for correction to the Examining Division.

In April 2009, the Examining Division responded, explaining that it would not correct its decision. It reasoned as follows:

"The ambiguity in form 1001 with regard to GB should have been clarified with the applicant. As such there is no explicit, unambiguous withdrawal.

Designation is by payment, NOT by indication on 1001. The designation fee for GB was paid and afterwards the designation of GB has never been questioned by the applicant ...

Even if the withdrawal had been explicit but had been overlooked by the EPO, the Office would have been found by the principle of good faith, having accepted the designation of GB throughout examination proceedings.

The division is bound by its decision and cannot correct it to the disadvantage of the patentee."

Arguably each of these points is wrong as a question of fact or law.

The merit of these reasons was best summarised by the Opposition Division which, commenting on the Examining Division's decision, said that it regretted "any adverse effect that might result for [Zodiac Seats] or, more generally, for the public from the administrative mistake [that] occurred during the examining proceedings leading to grant." The Opposition Division and then, in 2010, the Technical Board of Appeal went on to conclude that only the Examining Division was empowered to correct the mistake.

In the UK, Virgin's claim went to trial in 2008, with the High Court finding that the patent was not infringed and, if it were infringed that it was invalid. The appeal was heard in 2009, with the Court of Appeal reversing the High Court's decision, holding that the patent was valid and infringed. Shortly after the Court of Appeal's decision, however, the Technical Board of Appeal held that EP (UK) 1,495,908B1 was invalid and Virgin materially and substantially amended it.

Having lost, Virgin then re-commenced parallel proceedings against Zodiac Seats and its customers in relation to the amended patent, EP (UK) 1,495,908 B2. In its defence, in addition to arguing that the amended patent was not infringed, Zodiac Seats asserted that EP 1,495,908 had not been designated for the UK.

At first instance, Floyd J, having held that EP (UK) 1,495,908 B2 was not infringed, held that the court did not have jurisdiction to address the non-designation point. In response to Virgin's appeal of the finding of non-infringement, Zodiac Seats appealed the non-designation point. It fell to the Court of Appeal to consider whether it had jurisdiction to determine the issue.

The decision

Broadly two issues fell to be determined. Firstly, was Article 1 of the European Court of Human Rights (ECHR) engaged? And secondly, was Article 6 of the ECHR engaged?

Addressing the first issue, the court questioned whether the acts or decisions of the European Patent Office fell within the jurisdiction of the UK national courts for the purposes of Article 1 of the ECHR.

Article 1 says: "The High Contracting Parties shall secure to everyone within their jurisdiction the rights and freedoms defined in Section 1 of this Convention."

Zodiac Seats submitted that even in the sphere of international treaties a Contracting State retains legal responsibility for the acts and omissions of its organs - whether they were the consequence of domestic or international law. In essence, a Contracting State could not contract out of its Convention obligations by delegating to an international body.

In turn, Virgin submitted that the European Patent Office, as an international organisation, had its own legal personality separate from its members and was not a party to the ECHR. Any deficiencies in the scope of judicial protection available to affiliated parties lay outside the jurisdiction of the English courts both under domestic law and for the purposes of Article 1 of the ECHR.

The court favoured Virgin. It reasoned that, while the Patents Act 1977 gave effect to the European Patent Convention, granting national patents from applications processed by the European Patent Office, this was not a case where the UK as a contracting state has any de facto involvement or responsibility for the examination or grant process of a patent. Hence, there was an insufficient jurisdictional link to engage Article 1.

As to the second issue, the Court questioned whether the EPO's denial of a remedy for the mistaken designation and Floyd J's refusal to address the issue in UK proceedings engaged Article 6 of the ECHR.

Article 6 says: "In the determination of his civil rights and obligations ... everyone is entitled to a fair and public hearing ... before an independent and impartial tribunal established by law."

Here, the Court of Appeal held that Zodiac Seats had to establish a right to a fair hearing of their case on non-designation and a legal right to raise that issue as a basis for challenging the grant.

The court concluded that the Patents Act 1977 set out an exhaustive list of grounds upon which one can challenge a patent, none of which permitted the review of administrative decisions by the European Patent Office. It accepted that it is "inherent in the scheme of the EPC that some errors, even if detected, will not be open to correction at the suit of a third party." However, Article 6 itself did not give a legal right to raise the non-designation issue.

Comment

The grant of the patent by the Examining Division was ultra vires. Having expressly not designated the UK, it was outside both the powers of the patentee and the European Patent Office to reinstate the designation.

This ultra vires act had considerable consequences: while Virgin was ultimately unsuccessful, it pursued its allegation of infringement for six years across two High Court trials, two appeals to the Court of Appeal and one appeal to the Supreme Court. The loss in time and irrecoverable costs was significant.

What would happen if a similar issue had arisen in relation to a national patent granted by the UK Intellectual Property Office? Here, the UK Court would have had free rein to review the mistake made. Why draw a distinction between acts delegated by statute to a national institution and acts delegated by statute to an international institution? Does this not result in an unwelcome asymmetry?

To put it another way, if there had been a fraud on the European Patent Office, should a national court be prevented from reviewing that fraud? The question was put to the Court of Appeal, its conclusion:

"If (as we assume for the purposes of this example) fraud does not taint the grant under the EPC, it equally provides no substantive right of challenge under domestic law because of a combination of the provisions of ss. 72 and 74 of the 1977 Act and the common law principle referred to earlier that a domestic court will not adjudicate upon the decisions of an international body such as the EPO. In such circumstances, there are no substantive rights upon which any relevant "contestation" can take place."

In this context, we await with interest the outcome of Spain's petition to the CJEU regarding the unitary patent.


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