The High Court has ordered pre-action disclosure of licences granted by a patentee whose business was licensing the patent.
CPR 31.16(3) sets out the jurisdictional requirements for pre-action disclosure:
- The applicant and respondent are likely to be party to subsequent proceedings.
- If proceedings have started, the respondent's duty in standard disclosure would extend to the documents or classes of documents requested in pre-action disclosure.
- Pre-action disclosure is desirable in order to dispose fairly of the anticipated proceedings, or assist the dispute to be resolved without proceedings, or save costs.
CPR 31.16 requires a two-stage approach: the court must consider if the jurisdictional thresholds are met; and the court must decide whether, as a matter of discretion, to make the order (the two-stage test).
T owned a patent relating to a method of issuing tickets over the internet. T argued that a bus tour operator, B, required a licence for its ticketing system, otherwise it risked infringing T’s patent.
In correspondence, B denied infringement and challenged the patent’s validity. T responded that many other transport companies had taken licences. B asked for disclosure of all the licences, and the names of the licensees, which T refused.
B applied for pre-action disclosure, arguing that patent infringement proceedings would incur considerable costs, and that B might incur irrecoverable costs even if successful. B also argued that the disclosure of the existing licences was desirable because it would allow B to establish the value of T’s claim, which would assist settlement.
The court ordered pre-action disclosure in relation to some of the documents.
So far as the two-stage test was concerned, B had to show that it was more probable than not that the documents were within the scope of standard disclosure. If there was doubt as to whether the disclosure stage would ever be reached, as for example in intellectual property (IP) cases where liability is usually heard separately from quantum, this should be taken into account when exercising the court’s discretion.
As T exploited the patent by licensing, the correct approach to the quantification of damages for infringement was to assume that the damage was equal to the amount that the infringer would have had to pay if he had a licence on the terms normally granted by B. This involved considering comparable licences.
In considering whether disclosure before proceedings was desirable, a relevant consideration was the extent to which information was known only to one of the parties.
Pre-action disclosure was desirable here because it was not inevitable that there would be a split trial. Even if there was, the obligation to give disclosure extended to documents relating to quantum, unless the court made an order to limit disclosure or ordered disclosure in stages, but that depended on the exercise of the court’s discretion. It was irrelevant that, in theory, T might elect for an account of profits. The court considered that it was in practice more likely that T would elect for an inquiry as to damages than an account of profits.
Not all of the licences granted by T under the patent were sufficiently comparable that they would fall within the duty of standard disclosure on an inquiry as to damages. In the absence of evidence from T regarding the licences that it had granted, the duty of standard disclosure extended to all licences in the transport sector only.
Disclosure was desirable in order to dispose fairly of the anticipated proceedings, particularly to assist the dispute to be resolved without proceedings and to save costs.
Parties to IP disputes often incurred considerable costs in litigating issues on liability that were disproportionate to the quantum of the claim. Here, it was appropriate for the court to exercise its discretion in favour of disclosure because B did not have access to the key information which the court would take into account on an inquiry as to damages: the terms of comparable licences granted by T to third parties. It was not sufficient for T to argue that disclosure would deprive it of the ability to negotiate licences without licensees knowing what other licensees had agreed to pay. Availability of price information was a key requirement for the proper functioning of any market. B should not be obliged, if it chose not to litigate, to accept whatever royalty rate T offered, if a court would award less by way of damages.
In older IP cases, the courts would refuse disclosure relating to quantum, requested at an early stage in order to enable informed settlement decisions, on the grounds that this was unduly burdensome where there was a split trial with liability tried first. Describing this application as unprecedented, the court here set out a more modern approach to pre-action disclosure in IP cases, particularly the paramount importance of proportionality of costs in the overriding objective. Specifically, the court recognised that the absence of information about the terms of comparative licences was a serious obstacle to B accepting a licence to avoid being sued. The decision may lead to similar applications against patent trolls for pre-action disclosure of licence agreements.
Case: The Big Bus Company Ltd v Ticketogo Ltd  EWHC 1094 (Pat).
First published in the June 2015 issue of PLC Magazine and reproduced with the kind permission of the publishers. Subscription enquiries 020 7202 1200.