The stakes can be very high in patent litigation. If I infringe a patent, an injunction is normally granted against me; if the technology is key to the competitiveness of my product, that injunction could cost me my business.
The complexity and interdependence of technical (and biotechnical) solutions also means that in most technology-heavy industries in-licensing is a must. So it is not surprising that with so much at stake companies are often willing to take a licence, even where validity or infringement might be successfully contested. On occasion, however, commercial cooperation breaks down: one party is too greedy or has less to lose, and uses the threat of an injunction to try to ratchet up the price. In such cases the powerful remedy of an injunction may sometimes seem to tip the balance of power too far in favour of the patentee. This article takes a brief look at the circumstances in which the English courts may be willing to withhold or limit an injunction in patent cases.
Final Injunction the Usual Remedy in Patent Cases
Although the award of an injunction is discretionary, it is very rare for the English courts to deprive a successful patentee of its injunction. In some circumstances, however, damages may be awarded instead of an injunction; the court may also grant an injunction subject to limitations or to a “run-off”. The test is whether enforcement would be “grossly disproportionate”. Withholding an injunction is tantamount to allowing the defendant to buy a licence, and, as Pumfrey J put it in Navitaire v Easyjet, “if the effect of an injunction is not oppressive, the defendant cannot buy his way out of it, even if the price, objectively ascertained, would be modest.”
The leading case of Shelfer v City of London Electric Lighting Co, which was about nuisance caused by an electric lighting company, sets out guidance for the court in deciding whether to withhold an injunction. Shelfer established the “good working rule” (Smith LJ) that damages may be awarded instead of an injunction if four conditions are met:
Shelfer has been applied in a number of more recent patent decisions in the UK. For example, in Chiron v Murex, which related to a testing kit for hepatitis C, the defendants failed under the Shelfer guidelines as there was no evidence that an injunction would be oppressive to the defendants and, in any event, the injury would not have been small. Though very important, the Shelfer criteria are, however, merely guidelines and not exhaustive. For example, in the case of Banks v EMI Songs (a copyright case involving use of a lyric by the group UB40) an injunction was refused despite the fact that the compensation was not small. It is also clear that an injunction may be refused on the grounds of the public interest. In such cases the question is not whether the injunction would be oppressive to the defendant but what the effect will be on third parties. In Roussel-Uclaf v Searle (1976), an application for an interim injunction in relation to a drug for treating cardiac diseases, Mr Justice Graham stated (obiter) that where the infringing product is a unique, lifesaving drug, “it is at least very doubtful if the court in its discretion ever ought to grant an injunction and I cannot at present think of any circumstances where it should.” However, in Chiron v Murex, Aldous J, granting the injunction, questioned this principle, suggesting that the provisions for Crown User in the Patents Act 1977 (see below) are sufficient to protect the public interest in such situations. In Chiron an argument that an injunction would prevent important further research was also rejected: it was inherent in the patent system that patents would sometimes impede research, and the research exception in the Patents Act 1977 was sufficient to protect the public. So, although it is clear that an argument relating to the public interest can succeed, in patent cases the court is likely to take into account that the statute already provides for a balance of interests and so may be reluctant to go beyond this in a number of areas. Nevertheless a lifesaving drug, where a substitutable therapy is not available, is an example of a case where an injunction might be refused, particularly if the conditions for Crown User or compulsory licensing (see below) are not met.
Acquiescence and Laches
A final injunction may be refused on the basis of acquiescence, if the patentee has positively acquiesced in the use of its patent – for example, where the patentee knows of a use of its technology that is against its rights, but stands by in such a way as to suggest to the infringer that it will not object. An injunction may also be refused on the basis of laches if unreasonable inaction by the patentee has resulted in it being unjust to grant an injunction. Acquiescence and laches arguments have rarely succeeded in English patent cases. A recent example is the case of Monsanto v Cargill, in which the argument that Monsanto had acquiesced in Argentinian soybean production using unlicensed Roundup Ready plants, failed in the High Court because Cargill was unable to point to anything Monsanto had done or said which suggested to Cargill that it would be able to export the soybean produce without complaint.
In some circumstances the effect of an injunction may be circumvented by applying for a compulsory licence under Section 48 Patents Act 1977. The application is made to the Comptroller at the UK Intellectual Property Office. The rationale behind these provisions is to avoid anti-competitive practices by ensuring that inventions which are in the public interest are licensed out to other parties. They may be applicable, for example, where the patentee’s refusal to grant a licence on reasonable terms means that demand for a patented product is not being met in the UK, or that a related invention cannot be exploited, or that other commercial or industrial activities in the UK are being unfairly prejudiced. The application cannot be made until three years after grant of the patent and the applicant must, among other things, have tried and failed to obtain a licence on reasonable terms within a reasonable period. One of the advantages of such a licence is, of course, that the Comptroller will set a reasonable royalty rate, so circumventing the demands of an unreasonable patentee. The circumstances in which they are available are, however, very limited – not only because they are aimed at a situation where the patentee is failing to properly exploit the patent, but also because of the need in many cases for “unfair prejudice”. The licence would also not usually cover manufacture for export.
Similarly, Crown Use may in some circumstances provide a route to market for a potentially infringing product. The “Crown Use” provisions in the Patents Act 1977 allow any government department and any other authorised persons to carry out acts which would otherwise be infringing without the consent of the patent proprietor. If Crown Use is invoked a licence is effectively ordered between the relevant government departments and other authorised persons (eg, suppliers to a government department) and the patentee. The Ministry of Defence sets the terms of the licence, including royalty rates. The NHS is a government department, meaning that where the product is an important pharmaceutical which is effectively unique, there is a good likelihood that Crown User could provide a way out for the potential infringer.
Final Injunctions Subject to Conditions
Virgin Atlantic v Premium Aircraft (2009) (relating to flat airline seats) is a recent example of a case where the Court of Appeal was willing to impose conditions on the final injunction. Giving judgment, Jacob LJ issued a reminder that in the special context of enforcement of IPR under the Enforcement Directive remedies must be proportionate, but emphasised that “even given that it would have to be a very strong case for an injunction to be withheld”, quoting with approval Pumfrey J’s comments in Navitaire referred to above. The defendants accepted that a permanent injunction was appropriate but argued for a “carve-out” to allow them to supply a number of infringing seats under a contract with Delta Air Lines in a short “run-off” period. Applying the “grossly disproportionate” test, Jacob allowed the defendants to supply seats subject to payment of £10,000 per seat. In addition there was, among other things, a stipulation that Delta should give an undertaking not to use planes fitted with these seats on the London–New York (JFK) route which was in direct competition with Virgin Atlantic. Factors influencing the decision to allow a carve-out included: that the seats would not be used in competition with Virgin; that only 400 seats would be supplied in a short run-off period; that the defendants would otherwise have to pay £1 million as a “penalty” under the contract with Delta; and, to a small extent only, the potential effect on employment.
Stay of an Injunction Pending Appeal
A commercially important patent decision in the High Court is frequently appealed. Imposition of an injunction at the end of the first instance trial may cause considerable injustice if the decision is overturned on appeal. In some cases, the need to take the product off the market in accordance with the injunction may in practice make an appeal pointless, as the damage will have been done. If there is to be an appeal the court may decide to stay the award of the injunction pending appeal. The test to be applied is the balance of convenience: “The object, where it can be fairly achieved, must surely be so to arrange matters that, when the appeal comes to be heard, the appellate court may be able to do justice between the parties, whatever the outcome of the appeal may be.” However, as Jacob LJ commented in the Virgin Atlantic case:
...the question is not the same when one is considering what to do on an application for an interim injunction pending trial. In that case the patentee has yet to establish his right, whereas after successful trial he has prima facie done just that. So in general, when an appeal is pending, the patentee will get his injunction provided he gives a cross-undertaking in damages against the possibility that the defendant’s appeal would be successful. The question, however, remains one of a balance of convenience. (Minnesota Mining and Manufacturing v Johnson & Johnson, 1976).
As can be seen from the above, the English court is generally reluctant to withhold or caveat a permanent injunction in patent cases except in very limited circumstances. There is no indication at present that the English court will follow the lead of the US Supreme Court in eBay v MercExchange LLC Case no 05-130, 15 May 2006, where the court appeared to take a slightly more relaxed attitude. In that case the Supreme Court rejected the idea that there is a special rule obliging the court to grant an injunction in patent cases in all but exceptional circumstances; equally, however, there was no assumption that a licence should be granted because a company was willing to licence its patents and did not itself work its patents. Instead, the general US principles of equity apply which would appear to allow the argument that a patentee which is generally willing to licence its patents can be adequately compensated by damages rather than by injunction in some circumstances. The key point from an English point of view is that an infringer is not allowed to infringe simply on the basis that he can pay the market rate. The advantage of that approach is that the patent’s fundamental status as an item of property is preserved. The disadvantage, perhaps, is that in technology-heavy industries it can lead to some “chilling” on innovation.