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Virgin v Zodiac - what implications for the Pharma sector? Alan Johnson and David George

30/10/2013

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An important issue for patentees is the speedy enforcement of their patents. This issue is particularly critical in the Pharma sector where the losses caused by infringement, of even a short duration, are potentially huge yet difficult to quantify precisely.

National courts face a dilemma as to what to do when a European patent subject to ongoing opposition proceedings is litigated: whilst only the national court can determine whether the national portion of the patent is infringed, the national court and the EPO share a concurrent power to revoke or amend that patent. Proceeding to trial brings about the risk that the national court rules that the national portion of the patent is valid and infringed, only for the EPO to later determine the patent as granted was invalid or should be limited by amendment. On the other hand staying the case pending completion of EPO proceedings could create immense delay – opposition proceedings of 3 to 5 years’ duration are not uncommon, and many last longer than a decade. A patentee can be seriously prejudiced by such delay.

In recent years the English Courts have in general exercised their discretion to refuse stays pending the outcome of opposition proceedings. A principle, relying on a line of cases stretching back to 1908, established that a patentee could recover damages for infringement, even if the patent was subsequently revoked. The principle forbade the party who lost the infringement case from seeking to re-litigate issues that it had already argued and lost. The practical advantage of the principle, as Jacob LJ put it in Unilin v Berry, was that it was not necessary to wait for the “slowest horse in the race” to finish to find out who had won. However, the principle was controversial and arguably unfair to a defendant if it ultimately won in the EPO. It was therefore unsurprising that the UK Supreme Court agreed to examine this issue further when this situation arose in the long running Virgin v Zodiac dispute.

The Supreme Court gave judgment on 3 July 2013, reversing Unilin. It ruled that Zodiac was entitled to rely on the revocation in the damages assessment: this was a new fact, not an attempt to re-litigate validity. The Supreme Court ruled that: “the effect of the revocation was that everyone was entitled to conduct their affairs as if the patent never existed”. Importantly, the Supreme Court also invited the Patents Court and Court of Appeal to reconsider their guidance on the question of stays pending opposition proceedings.

How the Court of Appeal will approach future cases in the light of the Supreme Court’s decision remains to be seen. In the future, stays may become easier to obtain where opposition proceedings are ongoing. However, other consequences may also follow. Preliminary injunctions are at present relatively rare because the Patents Court is a relatively swift forum. First instance judgments usually arrive within 12-18 months, plus another year for any appeal. Urgent cases can be expedited and proceed much more quickly. If the Patents Court were to stay litigation more readily, patentees might react by seeking preliminary injunctions, and/or security for damages as a condition of any stay.

The Court will no doubt wish to look into other options: patentees may increasingly be required to consider conditional amendments to their patents so that the UK Court rules on more than one possible form of claim so as to cover reasonably possible outcomes in the EPO. The Court might even wish to consider in such cases, adopting the German practice of bifurcating cases – with decisions on infringement typically being reached first with the decision on validity being postponed until after the conclusion of EPO proceedings.

No matter what practice develops, the case highlights the urgent need for the EPO to reform its cumbersome opposition practice. These questions will also need to be addressed in the context of the Unified Patents Court. The English Courts will also need to decide what should happen where damages case has concluded and monies have been paid, but the patent is then revoked. This issue did not arise in Virgin v Zodiac as damages had not yet been assessed at the time of revocation. This may be the topic of another dispute.

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