Patents: settlement agreement, final injunctions and account of profits

02 April 2016

Audrey Horton

Summary
The High Court has refused to grant an injunction against further patent infringements in a case involving breach of a settlement agreement, and refused to order an account of profits in the absence of exceptional circumstances.

Background
An account of profits is a statutory remedy for patent infringement (section 61(1)(d), Patents Act 1977). Successful claimants must elect for either account of profits or inquiry as to damages. When a claimant has alternative remedies in an action for infringement of intellectual property rights (IPR) the court may order the disclosure of limited information to allow the making of an informed choice (Island Records Ltd v Tring International plc and another, www.practicallaw.com/6-100-3170).

In exceptional cases, the court may order an account of profits for breach of contract where normal remedies are inadequate (Attorney-General v Blake, www.practicallaw.com/9-101-3766).

Facts
S brought an action against H claiming patent infringement and breach of contract. The breach of contract related to an agreement settling a previous infringement action between S and H over the same patent (the settlement agreement).

The Court of Appeal held that the settlement agreement precluded S from claiming for patent infringement. However, the breach of contract claim was allowed to proceed and the High Court found that H was in breach.

S applied for an injunction to prevent further breaches of the settlement agreement and also for Island Records disclosure to enable it to elect between an account of profits or a damages inquiry.

Decision
The court refused to grant an injunction. S had chosen to settle its claims for patent infringement. By electing to pursue contractual rights against H in respect of future infringement, it had substituted contractual remedies for the remedies that would have been available in an action for patent infringement.

Where a party had settled litigation by promising not to infringe an IPR, a claimant should have no more difficulty in obtaining an injunction where that party has broken its word than in a case where no settlement has been reached and the court had found infringement. So the same principles should be applied to the grant of injunctive relief as would apply in a successful action for patent infringement.

Although it was established that an actual infringement of the patent would imply an intention to continue the infringement, despite any promises not to do so, injunctive relief was a discretionary remedy and the court had to be satisfied that it was appropriate in all the circumstances. It was inappropriate to grant an injunction if it was unnecessary for a preventive purpose.

Here, the infringements were historic and unlikely to occur again. If they did, S could seek an injunction and, if there was a repetition, the court’s attitude to the grant of an injunction would be different.

In the settlement agreement, S and H had agreed that any identified breach would trigger a mutual co-operation arrangement. In particular, if S discovered a product within a specified territory that it believed to be in breach of the settlement agreement it had promptly to notify H,  H had to investigate the issue, and the parties then had to work together to resolve the situation to each other’s satisfaction. This mutually agreed remedy and procedure was inconsistent with S having an immediate right to bring contempt proceedings. In addition, H undertook to investigate and report any future alleged breach of the settlement agreement. If a permanent injunction was granted, this would require H to investigate and disclose its own allegedly criminal conduct in the context of contempt proceedings, which would go against the right against self-incrimination.

The election between account of profits and inquiry as to damages was the normal order in patent infringement cases, and a limited amount of information was normally granted in order to enable the successful claimant to make an informed election. However, this claim was for breach of contract not patent infringement.

While the availability of accounts of profits in respect of breaches of contract was set out in Blake, the fact that an undertaking was given not to infringe an IPR did not amount to exceptional circumstances justifying such an account. Here, there was nothing exceptional which would justify an order for an account of profits in respect of a successful claim for breach of contract, so the question of Island Records disclosure did not arise.

Comment
An important factor in the decision not to grant an injunction was that the settlement agreement provided a mechanism for dealing with future infringements which required the parties to co-operate. Where a settlement agreement includes a mechanism for co-operation in dealing with future alleged infringements, parties should be aware that this mechanism may be regarded as inconsistent with, and preclude the granting of, a permanent injunction, particularly, as here, where the infringing products are manufactured by others outside the jurisdiction of the patent concerned, so that the defendant does not have complete control over the products.

Case: Stretchline Intellectual Properties Ltd v H&M Hennes & Mauritz UK Ltd [2016] EWHC 162 (Pat).

First published in the April 2016 issue of PLC Magazine and reproduced with the kind permission of the publishers. Subscription enquiries 020 7202 1200.

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