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He’s got a Ticketogo (and he don’t care): pre-action disclosure of licence terms in patent infringement dispute

The Big Bus Company Ltd v Ticketogo Ltd [2015] EWHC 1094 (Pat) (28 April 2015)

Litigation can be an expensive affair, even for the eventual victor in any dispute. This is especially the case in intellectual property disputes, where the issues are complex, the expense associated with expert witness and independent tests are high, and not all of the costs may be recoverable from the losing party. In fact, in some cases, those costs can end up dwarfing what is actually at stake in the dispute, i.e. the value of damages, account of profit or injunction sought – referred to as the “quantum” of the claim.

In recent times, the introduction of the Intellectual Property Enterprise Court (IPEC), with its limits on the damages and costs awarded and its streamlined processes, has helped to curb some of these excesses. In addition, the Civil Procedure Rules (CPR) which govern civil litigation in England and Wales also aim to provide mechanisms for saving expense and ensuring cases are dealt with in a manner that is proportionate to the amount of money involved.

One of the mechanisms provided by the CPR is the ability to apply to the court to gain access to documents held by the other side before any proceedings have actually begun, with a view to avoiding the need for litigation or at least reducing the costs of any subsequent litigation. This is referred to as “pre-action disclosure”. In a recent High Court case, Mr Justice Arnold delivered a judgement on an application for pre-action disclosure in a patent dispute, with potentially far reaching consequences for both cost control and dealing with patent trolls, more about which below.

The Parties and the Facts

Ticketogo is the proprietor of UK patent GB2391101 (“the Patent”), entitled “Ticketing System” and exemplified by this beautiful diagram:

tickettogo

The Big Bus Company Ltd (“Big Bus”) applied for pre-action disclosure against Ticketogo Ltd (“Ticketogo”).

Big Bus operates open top bus sightseeing tours.

The evidence of the case suggests that Ticketogo does not conduct any business other than patent licencing. If you are being non-judgemental, you would refer to them as a “non-practicing entity” (NPE). If you were less kind, you might refer to them as a patent troll.

Ticketogo believed that Big Bus infringed the Patent, and wrote to Big Bus telling them so. Ticketogo indicted that they had “recently concluded a licence agreement for the Patent with a major coach travel operator in the UK” and suggested that Big Bus do likewise. Big Bus replied, stating that they did not require a licence, and several letters flew back and forth debating the scope of the claims and whether Big Bus’s activities infringed.

Ticketogo sent at least three more letters to Big Bus, each listing various companies which had taken a licence on the Patent in an effort to persuade Big Bus to enter into licence negotiations. One of these letters included a list of 44 licensees.

Big Bus then asked Ticketogo for pre-action disclosure of these third-party licence agreements, with a view to establishing the quantum of the claim which Ticketogo were likely to bring against them. Ticketogo refused, and gave a relatively clear indication that they intended to bring a claim against Big Bus:

“If the Big Bus Company’s strategy is to bury its head in the sand in the hope that our client’s claim will disappear, it is mistaken. The Big Bus Company should be in no doubt that our client’s claim will not disappear, and the size of the claim grows with each day of unlicensed activity.”

Accordingly, Big Bus applied to the High Court, seeking a court order which would enable them to see the third-party licence agreements.

The Legal Test and the Judgement

There is a well-established two-stage test for pre-action disclosure. Firstly, the conditions of CPR rule 31.16 must be met, which requires that:

a) the respondent is likely to be a party to subsequent proceedings;
b) the applicant is also likely to be a party to those proceedings;
c) the respondent’s duty by way of standard disclosure in proceedings would extend to the documents or classes of documents of which the applicant seeks disclosure; and
d) disclosure before proceedings have started is desirable in order to –

(i) dispose fairly of the anticipated proceedings;
(ii) assist the dispute to be resolved without proceedings; or
(iii) save costs.

Clearly, the conditions (a) and (b) were met – both Big Bus and Ticketogo would be parties in any subsequent infringement proceedings.

Condition (c) specifies that the documents to be disclosed must be documents that would be disclosed in any case if the proceedings were actually started. Ticketogo argued that the fact that IP cases usually have a split trial (decide who is to blame in a first trial, decide how much the losing party has to pay in a second trial) meant that these documents would not necessarily be disclosed in an invalidity trial. Mr Justice Arnold was unconvinced by this argument and decided that condition (c) had been met. However, only a subset of the licences – those relevant to transport ticketing – were deemed to fall under standard disclosure. Licences granted by Ticketogo to operators in the entertainment industry were not included.

The judge decided that disclosing the licence agreements would assist the dispute to be resolved without proceedings – if Big Bus knew how much a licence was worth, they might decide to just take the licence rather than bothering with an infringement/validity trial. Even if the dispute did end up in court, knowing the value of these licences would help to ensure that the case was managed in a way which was proportionate to what was at stake. Therefore, condition (d) was met.

The second stage of the test is for the judge to consider whether it is appropriate to use his discretion and order the disclosure.

Big Bus argued that the judge should use his discretion to order the disclosure because it would save costs, and it was not particularly burdensome or costly for Ticketogo to disclose the documents. Ticketogo argued that the judge should use his discretion to refuse the application, because (a) Big Bus could form its own opinion of how much a licence would be worth, based on its own knowledge of its system, and any professional advice it cares to take and (b) ordering pre-action disclosure would negatively impact Ticketogo’s ability to negotiate licences.

Ticketogo’s arguments did not wash. Big Bus’s own assessment would be made without a key piece of information which would be used in calculating damages if it were found to infringe – the value of the licence.

Mr Justice Arnold considered that Ticketogo’s second argument went to the heart of the case, and was the real point of principle at stake. Ticketogo wanted to be able to negotiate licences individually, without the licensee knowing what other licensees had agreed to pay, so that they could maximise their licencing income.

Mr Justice Arnold’s answer?:

“..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”

Conclusions

So, Big Bus succeeded and Ticketogo were obliged to disclose the details of the relevant licences to Big Bus. The judgement is a pragmatic one, aimed at avoiding unnecessary costs by getting an answer to a very important question early – what is the real value of the claim?

This seems like a particularly relevant tool against NPEs, who are likely to take an aggressive approach to licence negotiations. Of course, when your only income is licencing, you want to maximise the revenue from each licence. The ability of a potential licensee to discover what other third parties are paying in terms of royalties could fundamentally shift the balance of power.

Of course, if you are a patent holder, this decision has an impact when it comes to enforcing your rights, and particularly what you disclose about other licences. It’s all very well citing the existence of other licensees in order to persuade the potential infringer to take a licence, but one should be careful that that weapon is not turned against you.

For more information, contact Dick Waddington or Andrew McKinlay.

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