Russia, Robots and Revocation: Ocado’s UK Court Battle

Some readers will already have heard about the ongoing “Robot Wars” patents saga. Robotic warehouse technology pioneer AutoStore sued grocery giant Ocado (who developed its own automated system for use in grocery businesses) for patent infringement, with Ocado counterclaiming for revocation. The UK High Court recently ruled on the matter and revoked AutoStore’s two patents for lacking novelty and/or inventive step. ([2023] EWHC 716 (Pat).)

This case was unusual because key to Ocado’s success was a prior disclosure in Russia of a “Bank Bot Design” by AutoStore. There was no dispute that the disclosure had been made; the point was whether it was made under a binding obligation of confidence. This turned on which national law – Russian, Norwegian or UK – was to be applied in determining the existence of any obligation.

Russian law won out, and Mr Justice Hacon found that under Russian law the disclosure was not made under an obligation of confidence. Therefore, the patents were invalid.

For parties engaged in cross-border discussions or negotiations, this case is a reminder of the importance not only of having a confidentiality regime in place, but also of being aware of how jurisdictions of interest may take a different view on what develops from those discussions.

Background

There were three relevant parties. AutoStore, a Norwegian company, was in discussions with EVS, a Russian company that deals in storage and security systems for banks. The Bank of Russia (“the Bank”) was interested in what AutoStore had to offer and asked EVS to look into AutoStore’s system to see whether it could be of use for the Bank.

• In July 2010, AutoStore emailed proposed designs (the “Bank Bot Design”) to EVS, which were not passed to the Bank at the time.
• In September 2011, there was a meeting between AutoStore, EVS and the Bank in Norway. At this meeting, the Bank Bot Designs were also discussed. This was the first time the Bank saw the Bank Bot Design. However, the disclosure at this meeting is not analysed further in this article, since Hacon J found that the July 2010 email was enough to invalidate the patents.

No confidentiality regime was in place for these discussions, although representatives of AutoStore and EVS said under cross-examination that they understood the information to be confidential.

Later, AutoStore and EVS entered into a distribution agreement under Norwegian law, according to which EVS would deliver AutoStore’s system to the Bank.

AutoStore admitted that the Bank Bot Design was an enabling disclosure of the invention, but maintained that it was disclosed under an obligation of confidence and was therefore not available to the public.

What law is to be applied?

Why not analyse the situation according to the UK’s approach to obligations of confidence? After all, this was a UK court dispute over a UK patent. However, the position was not so straightforward because of the foreign context:

• The disclosure took place in Russia, not in the UK.
• The information was communicated by a Norwegian company to a Russian entity. No UK entity received any confidential information.
• There was no confidentiality regime in place to which UK law applied – in fact, there was no regime in place at all, although at a later point a distribution agreement was signed under Norwegian law.

Had the disclosure been made in the UK to a UK entity or under a NDA subject to UK law, then there would be no need to look any further than UK law. But, because AutoStore argued that there was an equitable obligation of confidence and there was little apparent link to the UK, the question was which law should be applied to assess that obligation.

Conflict of Laws

The concept of “conflict of laws” or “private international law” is used in situations where there is uncertainty about which national law applies. There were two main issues to consider:

• Firstly, was “Rome II”[1] applicable? Rome II is retained EU legislation that assists a court in identifying which foreign law should be applied in a dispute involving non-contractual obligations[2]. If it wasn’t applicable, then what was?
• Secondly, if Rome II was applicable, which article of Rome II was engaged?

AutoStore argued that the wording of Article 1(1) of Rome II made its application obligatory. It states that Rome II shall apply, in situations involving a conflict of laws, to non-contractual obligations in civil and commercial matters.[3]

Ocado argued that Rome II was not applicable and that it was plain that Russian law was to be applied. In the UK, we consider whether a party is “free in law and equity” to use information. Clearly, a Russian entity operating outside of the UK (and not being bound by any UK contract) is not subject to UK law, and it would only be Russian law that could give rise to an obligation of confidence on a Russian entity receiving information within Russia.

Hacon J had difficulties with the idea that Rome II should not be applied. To the judge the key issue was whether EVS was free to use the information. This could only be assessed by applying the relevant law to the facts. But that begged the question: what was the relevant law? Since the relevant law had to be determined, the judge saw no barrier to the application of Rome II. This was further supported by AutoStore’s point about Article 1(1) of Rome II.

Rome II to be applied – but which article?

The story does not end there, because Rome II can give different results for the applicable foreign law depending on which article of Rome II is applied. There are a number of possibilities within Articles 4, 6 and 12.

Article 12 (“Culpa in contrahendo”) covers non-contractual obligations presenting a direct link with the dealings prior to the conclusion of a contract. Under this article, the law that should be applied is:

1. the law which applies to the contract (Art. 12(1)), or
2. the law which would have been applied to the contract had it been concluded (Art. 12(1)), or
3. if it is not possible to determine either, then further means are provided to determine the applicable law (as set out in Art. 12(2)(a), (b) and (c)).

No contract was in place at the time of the disclosure, which ruled out option 1.

AutoStore pushed for option 2 to apply to EVS. Given that negotiations between EVS and AutoStore ultimately led to the conclusion of a distribution agreement under Norwegian law, the same law should apply to the alleged obligation of confidentiality. However, the judge disagreed, because it was not possible to tell at the time the disclosure was made which foreign law would eventually apply to the distribution agreement.

This left option 3. In the end, Hacon J found that it was Article 12(2)(a) specifically which applied between AutoStore and EVS, which says:

[…] the law applicable […] shall be:

(a) the law of the country in which the damage occurs, irrespective of the country in which the event giving rise to the damage occurred and irrespective of the country or countries in which the indirect consequences of that event occurred

Which foreign law is to be applied?

Once the relevant article of Rome II had been determined it was necessary to consider the applicable law.

The law to be applied was “the law of the country in which the damage occurs, irrespective of the country in which the event giving rise to the damage occurred and irrespective of the country or countries in which the indirect consequences of that event occurred”. The judge found this would be the law:

• of the country or countries in which AutoStore has a market that would be damaged; and
• of the countries in which AutoStore’s ability to patent its technology would have been restricted.

In some cases (e.g. if information was disclosed in a number of jurisdictions), the laws of all those countries are applicable and would be analysed under a so-called Mosaikbetrachtung (“mosaic approach”).

However, in this case, the judge found that the most effective remedy to address the situation would very likely have been that which could be afforded by a Russian court (assuming that the Russian court would have heard AutoStore’s claim). Therefore, the law that would have mattered most to the facts under consideration would have been Russian law and so Russian law was to be applied to assess EVS’s equitable obligation.

Russian law and obligations of confidence

Experts at trial explained that whether an obligation of confidence exists under Russian law depends largely on whether the parties had entered into an express contract of confidentiality. However, there was no express contract, and so there was no obligation of confidence under Russian law.

This is of course quite different to the position under UK law, under which an obligation of confidence can exist without it having been recorded in writing. It also contrasts with the position taken at the EPO, which will sometimes hold there to be a tacit agreement of secrecy depending on the commercial relationship between the parties and the exact object of the prior use (assuming the information has not otherwise been made available to the public).

Under Russian law, the Bank Bot Design was disclosed by AutoStore without imposing any obligation of confidence on EVS. It followed that the patents were invalid for lack of novelty.

Hacon J did note that, had he been applying English law, there would have been an equitable obligation of confidence because the parties had understood the information to be confidential (as was heard under cross-examination of various witnesses). However, under Russian law, this understanding did not matter.

What are the wider implications of this case?

Prior use is an issue which comes up quite often in the UK courts – most recently, it was discussed in Fujifilm v Abbvie (2017), Regen Lab SA v Estar Medical Ltd (2019), Takeda v F Hoffmann-La Roche (2019) and Edwards Lifesciences v Meril GmbH (2020). Moreover, prior use increasingly takes place abroad due to globalisation and so we may in future see more consideration of whether the laws of other jurisdictions apply.

This case is also a reminder to have a written NDA in place if there is any need to disclose information before filing a patent application.

[1] There is additional related legislation, Rome I, which deals with contractual obligations arising under foreign law. However, it was a non-contractual obligation (of confidence) which was considered in this judgment, and therefore only Rome II was discussed in detail.

[2] In this case, there was no agreement dealing with confidentiality. So the parties were relying on an equitable obligation of confidence. Such an obligation is a non-contractual one, which is why Rome II is relevant, rather than Rome I. Rome II does not expressly recognise equitable obligations. However, it was found that they are capable of being recognised as a species of non-contractual obligation.

[3] Subject to certain specified exceptions, which did not apply in this case.