The Big Bus Company gets an early ticket: disclosure of damages information ordered even before an action is started

25 August 2015

Disclosure (or "discovery") on the amount (quantum) of any monetary relief is often delayed until after a finding of liability has been reached. Could this be turned on its head by The Big Bus Company v. Ticketogo Ltd? In this case, the potential defendant to an infringement claim sought not just earlier disclosure, but pre-action disclosure of information relevant to assessing damages. The Patents Court granted an unprecedented order for disclosure of the patentee's licences (with third parties) before litigation had commenced. The decision is likely to have far-reaching implications for strategy and case management in future disputes, both in connection with patent licence negotiations and where, such as in Intellectual Property Enterprise Court (IPEC) cases, the value of the dispute may significantly impact the parties' approach.

Summary

Arnold J's decision in The Big Bus Company v. Ticketogo Ltd [2015] EWHC 1094 (Pat) was handed down on 28 April 2015.

The Respondent, Ticketogo, owns UK patent number GB 2,391,101 for a "ticketing system" (a method of issuing over the Internet a ticket containing a bar code in an image file format). The company's business is in patent licensing.

Ticketogo approached The Big Bus Company, an operator of open top buses, alleging that it had infringed the patent and inviting The Big Bus Company to take a licence. In the course of correspondence Ticketogo referred to numerous licences agreed with third parties regarding the same patent but refused to provide copies of them.

Without admitting patent infringement, The Big Bus Company applied to the Court for pre-action disclosure of the licences. Conscious of the expense of patent infringement proceedings and the prospect of incurring irrecoverable costs, The Big Bus Company argued that the requested disclosure would enable it to quantify the value of Ticketogo's claim, and so either facilitate the resolution of the dispute by informed settlement or, at the least, assist with proportionate conduct of the claim.

The legal basis for pre-action disclosure

The English rules on civil procedure prescribe the jurisdiction of the court to order pre-action disclosure (CPR Rule 31.16). An applicant must also satisfy the court that, as a matter of discretion, it should make the order.

Jurisdictional requirements

Parties to proceedings

The first of the jurisdictional requirements is that the applicant and respondent are likely to be parties to subsequent proceedings (CPR Rule 31.16(3)(a) and (b)). This requirement is considered on the basis that such proceedings are brought, and was clearly met in the present dispute. For good measure, Arnold J noted that he considered such proceedings to be likely in the dispute between Ticketogo and The Big Bus Company.

'Standard disclosure'

The next requirement is that the respondent's duty by way of 'standard disclosure' (discovery) would extend to the documents (or classes of documents) for which the pre-action disclosure is sought (CPR Rule 31.16(3)(c)). (This is considered on the assumption that proceedings had started).

The licences that The Big Bus Company sought would be relevant to the question of the quantum of any monetary relief awarded to Ticketogo, if its patent was found to be both infringed by The Big Bus Company and valid. (The Big Bus Company had indicated its position that the patent was not valid). The licences were not relevant to the question of liability i.e. whether the patent was in fact infringed and valid.

Ticketogo argued that, because issues of liability and quantum are generally bifurcated in the United Kingdom, it did not follow that these documents would fall within the scope of any standard disclosure. A finding that the patent was invalid or not infringed would negate the need for disclosure of the licences. Alternatively, if the patent was found valid and infringed, it was within Ticketogo's discretion to elect for an account of profits rather than damages. In an account of profits derived by The Big Bus Company's (hypothetical) infringement, the terms of any licences with third parties would be irrelevant. However, Ticketogo was not prepared to undertake only to seek an account of profits.

Arnold J disagreed with Ticketogo. Citing previous case law, he held that it was in the court's discretion whether to split the trial of liability and quantum; and the obligation to give 'standard disclosure' extended to documents relating to quantum even where there was a split trial, unless the court made an order to limit discovery. A tranche of the licences (namely, those within the transport sector, but not those within the entertainment sector) would therefore fall within the scope of standard disclosure, since they would be relevant to the calculation of any award as to damages.

Desirability

The last of the jurisdictional requirements (CPR Rule 31.16(3)(d)) is that disclosure before proceedings have started is desirable in order to dispose fairly of the anticipated proceedings, assist the dispute to be resolved without proceedings or save costs.

Ticketogo argued that pre-action disclosure would not necessarily dispose fairly of the proceedings or save costs. Since The Big Bus Company had not accepted liability, it did not follow that disclosure would automatically result in settlement. Further, in the event that the licences were disclosed but the patent was found to be not infringed or to be invalid, or Ticketogo succeeded on liability and elected for an account of profits, the costs of disclosing the licences would have been incurred unnecessarily.

Again, Arnold J disagreed with Ticketogo, preferring The Big Bus Company's position. He said that, all too often, the costs of intellectual property litigation are disproportionate to the damages recovered. Examples given included Force India Formula One Team v 1 Malaysia Racing Team [2012] EWHC 616 and Primary Group v Royal Bank of Scotland [2014] EWHC 1082 and some more recent cases in IPEC. It is desirable for parties to be able to make a realistic assessment of the value of the claim at the earliest possible stage.

In the present case, where the key information concerning the value of the claim was held by one party, it was desirable for that party (Ticketogo) to be required to disclose that information by way of pre-action disclosure. That would place the parties on an equal footing, enable both parties to make an informed assessment of whether the claim was worth litigating at all and so would promote settlement without resort to proceedings. After considering some earlier authorities on pre-action disclosure, Arnold J concluded that they were consistent with this view.

The court's discretion

Provided the applicant has satisfied the jurisdictional tests, the court will consider whether it should exercise its discretion to make an order for pre-action disclosure. The discretion must be exercised in accordance with the overriding objective of dealing with the case justly and at a proportionate cost

Arnold J's conclusion was that the points indicating desirability also indicated that the court's discretion should be exercised, and that other factors favoured grant of pre-action disclosure too:

  1. Without the disclosure, The Big Bus Company did not have access to the key information which the court would take into account on an enquiry as to damages, namely the terms of comparable licences granted by Ticketogo to third parties. In the judge's words: "Why should Big Bus have to fight and lose on infringement and validity in order to find out what it would have to pay by way of damages?". It was no answer to say that the third parties had negotiated their licences without the benefit of such disclosure. With the exception of the first licensee, "they could have made similar applications to the court".
  2. Transparency is a "virtue". Arnold J explained that the availability of price information is one of the key requirements for the proper functioning of any market, and he saw no reason why the market for patent licences should be any different.

Ticketogo's concerns as to confidentiality, and that it would be time-consuming and costly to seek third parties' consent to 'inspection' (the part of discovery in which documents are viewed) of disclosed licences, were dismissed:

  • The requested disclosure provided for the establishment of a confidentiality club, which "in the first instance would only include Big Bus' legal representatives". In other words, The Big Bus Company's employees would not, pending agreement or court order to the contrary, be able to review its competitors' licences.
  • As regards the inconvenience, Arnold J said: "All it would require is a letter in standard form to be sent to all relevant licensees notifying them of their right to object to inspection and inviting them to communicate any objections to Big Bus' solicitors. After that the onus would be on Big Bus to address such objections …".

Pre-action disclosure awarded

Accordingly, Arnold J concluded that an order for pre-action disclosure of licences granted under the patent in the transport sector should be made.

Arnold J then noted briefly a letter request by Ticketogo for disclosure of The Big Bus Company's online ticket sales and profits. The Big Bus Company accepted that "what was sauce for the goose was sauce for the gander". The judge encouraged the parties to try to reach an agreement.

Comment

In most patent licensing negotiations at present the prospective licensee has little or no knowledge of the terms that others have signed up to. Yet the market generally seems to work fairly well. Further, the party offering the licence often has no knowledge as to whether its prospective licensee has taken licences from other patentees or, if so, on what terms.

Will the decision in Ticketogo v The Big Bus Company lead to a change in current practice? It would seem likely to prove significant for many prospective litigants' negotiation and case management strategies.

The most obvious relevance is for potential disputes of relatively modest value (compared with the size of some patent disputes) in which the patentee obtains its revenue from licensing. Many (but by no means all of) such disputes will be more suited to IPEC, where disclosure relating to quantum might also now be sought more frequently at the outset of proceedings as well as in the course of pre-action correspondence.

It may also become more important in the future for a patentee to grant its first licence on favourable terms, whereas in practice the opposite is frequently the case while the technology is becoming established. Later prospective licensees may demand greater transparency as part of the price for entering into a licence without resort to litigation. Equally, however, a patentee may seek disclosure from prospective licensees to establish what the licensee has been willing to offer/pay in similar circumstances. The danger of Arnold J's expressed desire for transparency is that this may lead to a flurry of pre-action disclosure requests, which in turn cause significant disruption to carefully-nurtured relationships with customers and other licensees.

The writer's view, however, is that this decision should not be seen as a carte blanche on pre-action disclosure. In every case, the jurisdictional and discretionary tests will need to be met before the court will make an award and we expect future decisions to remain very fact-specific.

This article was first published in the CIPA Journal, May 2015


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