Try before you buy: pre-action disclosure of licences

29.04.2015

In a novel judgment handed down yesterday, Arnold J granted an application for pre-action disclosure of certain patent licences that a company had granted to third parties.

The application was brought by Big Bus against Ticketogo, after it was threatened with patent infringement proceedings. In correspondence Ticketogo told Big Bus that numerous other large travel and entertainment companies had already taken a licence to its technology. Big Bus sought disclosure of these licences into a ‘legal eyes only’ confidentiality ring to help it decide whether it would be worth fighting or settling. Big Bus argued that, even if proceedings did start, the disclosure would help the court and parties to allocate proportionate resources to the dispute in accordance with the Overriding Objective (as recently amended under the Jackson reforms).

Arnold J accepted that: “where the key information concerning the value of the claim was held by one party, then it was desirable for that party to be required to disclose that information by way of pre-action disclosure.” He also agreed “entirely” with the observation made by counsel for Big Bus that: “experience showed that, all too often, parties to intellectual property disputes spent large sums of money litigating issues on liability when the costs incurred were entirely disproportionate to what was at stake in terms of the quantum of the claim.”

Some may now wonder whether we will see pre-action disclosure applications against claimants in antitrust claims. The cost vs. valuedisparity of litigation is certainly not unique to IP law. These sorts of issue might even one day reach the CJEU now that the Directive on antitrust damages actions has been signed into law. More fundamentally though, what are the implications of the court’s willingness to shine a bright light in these opaque markets? Arnold J considered that court involvement would improve market functioning.

“56. [The respondent argued that] the order would unjustifiably infringe Ticketogo’s “freedom of negotiation”. What does this mean? As I understand it, the point being made by Ticketogo’s solicitor is that, for a party in the position of Ticketogo, it is desirable to be able to negotiate licences individually with licensees without each licensee knowing what other licensees have agreed to pay. This will enable such a party to maximise the licence income it obtains from each licensee. In my view this is the real point of principle raised by this application: is it an answer to an application for pre-action disclosure that is otherwise well founded that it would deprive a patentee (or other right owner) of the ability to conduct its business in that manner? In my judgment, it is not. On the contrary, I consider that, here as in other contexts, transparency is a virtue. Availability of price information is one of the key requirements for the proper functioning of any market, and I see no reason why the market for patent licences should be an exception to that rule. Why should Big Bus be obliged, if it does not wish to litigate, to accept whatever royalty rate Ticketogo now sees fit to offer it, if a court would award less by of damages? Accordingly, I consider that it is appropriate to exercise my discretion in favour of disclosure.”

There is clearly some merit in Arnold J’s observations. But somehow I doubt the situation is quite as straightforward as he would make out. Although in some cases pre-action disclosure may lead to a speedy settlement (e.g. if all previous licences are for nuisance sums), it is unlikely to do so in all cases. Moreover, the prospect of a licensee knowing that the terms of a licence it enters into might influence the deal its rivals take may make it more difficult for licences to be agreed without litigation in the first place. At the very least, it may increase incentives to ‘game’ licence structures so that they are less easily comparable. The efficiency in terms of transactions costs of using a confidentiality ring to reach a settlement is also unclear. Finally, in the absence of dominance, competition law imposes no general obligation on companies to license their technology on ‘non-discriminatory’ terms or at all. Will knowledge of comparator licences be so important in negotiations once the infringer faces a permanent injunction?