Tuesday, December 24, 2013

HTC v. Nokia: Would a Stay of a Permanent Injunction Pending Design-Around Be Permissible Under U.K. Law?


In HTC Corp. v. Nokia Corp., [2013] EWHC 3778 (Pat. Ct. Dec. 3, 2013), Justice Arnold of the Patents Court of England and Wales concluded that Nokia was entitled to an injunction for the infringement of European Patent (UK) No. 0 998 024.  This case has already been discussed by Scott Parker in EPLaw Patent Blog, here, and by Florian Mueller on Foss Patents, here.  For present purposes, I'll try not to be overly duplicative or exhaustive, but rather to focus on a few things in particular that struck my attention.  The full decision, which I commend to readers' attention, is available here

Justice Arnold recognized that, under applicable law, injunctions are discretionary.  Two of the leading cases addressing the court's discretion are Shelfer v. City of London Lighting Co. Ltd., [1895] 1 WLR 287, and Jaggard v. Sawyer, [1995] 1 W.L.R. 269.  (See also my book, pp. 179-82, and this blog post from June.)  As Justice Arnold notes, in Shelfer the court stated that the plaintiff has a prima facie entitlement to an injunction, and that a "good working rule" is that “(1) If the injury to the plaintiff ’s legal rights is small, (2) And is one which is capable of being estimated in money, (3) And is one which can be adequately compensated by a small money payment, (4) And the case is one in which it would be oppressive to the defendant to grant an injunction . . . then damages in substitution for an injunction may be given."   Moreover, in Jaggard, Sir Thomas Bingham stated that "the test is one of oppression, and the court should not slide into application of a general balance of convenience test."   

Justice Arnold also discusses other English case law (on injunctions for copyright infringement), articles 3(2) and 12 of the 2004 EC Enforcement Directive and TRIPs, before concluding in para. 32 that the effect of the practical effect of these latter two sources is little different from Justice Pumfrey's requirement, as stated that Navitaire Inc. v. EasyJet Airline CO. Ltd. (No. 2), [2005] EWHC 282 (Ch), [2006] RPC 4, that injunctive relief be granted unless, inter alia, it would be "oppressive" to the defendant in the sense of being "grossly disproportionate to the right protected."  

Applying these standards here, the court noted that the patent has six years yet to run and is not standard-essential.  Justice Arnold expressed some discomfort with the idea of in effect crafting a compulsory license with six years yet to run.  See paras. 14 ("Should the defendant have a duty to account?  Should the claimant have the right to inspect the defendant's books?  What if the defendant becomes insolvent?  Such questions can easily be multiplied.  In the case of consensual patent licenses, these questions are generally addressed these days by licence agreements of considerable sophistication.  Is the court to include similar terms in its order?"), 34 ("a difficult task in futurology").  One of the more interesting aspects of the opinion, however, is the court's discussion of noninfringing alternatives:
  1. Counsel for HTC relied on the traditional analogy of a patented rivet (or sometimes it is a whistle) on a battleship. An injunction to restrain infringement of that patent by the battleship manufacturer (as opposed to the rivet supplier) would be disproportionate, he argued. But this depends on what the effect of the injunction actually is. If the battleship manufacturer has immediate access to a non-infringing alternative rivet, then the effect of the injunction on him will simply be the cost, if any, of switching from the patented rivet to the non-infringing one (both any one-off costs such as changing the production line and any ongoing cost differential in the component price). Of course, if the cost of switching from the patented rivet to a non-infringing rivet is prohibitive for some reason, then in practice the non-infringing rivet will not be a realistic alternative. Thus whether the injunction is disproportionate depends on the availability and cost of non-infringing alternatives. . . .
  1. Non-infringing alternatives. As I have said an important consideration, and perhaps the single most important consideration, in assessing whether the grant of an injunction to restrain patent infringement would be disproportionate is the availability and cost of non-infringing alternatives.
  1. The problem of "patent hold up" which has been much studied by economists generally arises either where there is no non-infringing alternative or where the cost of switching to the non-infringing alternative is prohibitive. The paradigm example of the former situation is the standard-essential patent. Because it is essential, there is no alternative for products which comply with the standard. That is why standards-setting organisations like ETSI (the European Telecommunications Standards Institute) require owners of standard-essential patents to undertake to grant licences on FRAND (fair, reasonable and non-discriminatory) terms. An example of the latter situation is where a manufacturer has invested a great deal of money in developing and marketing a complex product only to discover, to its surprise, that a vital component of the product infringes a patent, and by the time it discovers this it is too late to switch to a non-infringing alternative except at prohibitive cost. This was one reason why the former phenomenon of so-called "submarine" patents in the USA could be so dangerous.
  1. If non-infringing alternatives are available at non-prohibitive cost, however, then there is unlikely to be a problem of patent hold up. Accordingly, other things being equal, an injunction is unlikely to be disproportionate.  
The court concluded that, in the present case, a noninfringing alternative was available to HTC, and that it was "probable that, starting from scratch now, HTC could render all its phones non-infringing within 18 months."  As a result, "Taking all of the factors relied on by the parties into account, and in particular the ones discussed above, I am not persuaded that this is a case in which I should exercise my discretion to award damages in lieu of an injunction. Nokia has a legitimate interest in seeking a final injunction to prevent further exploitation of the patented invention by HTC without its consent. This is not a case in which the injury to the patent is small, capable of being estimated in money and adequately compensated by a relatively small money payment. If an injunction were refused, it would have to be on the basis of an order for a running royalty. In those circumstances, refusal of an injunction would be tantamount to imposing a compulsory licence on Nokia in circumstances where HTC could not obtain a compulsory licence by the proper route. Most importantly, the grant of a final injunction would not be disproportionate. The grant of an injunction will not deliver HTC over to Nokia "bound hand and foot, in order to be made subject to any extortionate demand" Nokia may make, because HTC already has some non-infringing alternatives available to it, could have had more non-infringing alternatives available to it by now if it had acted promptly when first sued by Nokia and will in any event have more non-infringing alternatives available to it in a period which is significantly shorter than the remaining term of the Patent" (para. 74).   

Nevertheless, the court decided to stay the injunction pending appeal with respect to one of HTC's phones, the "HTC One", but not with respect to other models, applying an approach set forth by Lord Justice Buckley in Minnesota Mining & Manufacturing Co. v. Johnson & Johnson Ltd. (No. 3), [1976] RPC 671.  An appeal is expected to be heard in "July or October 2014."    Shortly thereafter, as Florian Mueller reports, the appellate court stayed the order as to the HTC Mini as well..

Here's my question:  Could the court instead have stayed the injunction for 18 months, the period it would take HTC to complete the design-around?  That seems to me to be a more equitable resolution.  It avoids requiring the court to craft a six-years-in-duration compulsory license, but at the same time protects HTC from holdup during the design-around period.  Staying the matter pending appeal seems more arbitrary, in terms of duration.  Lemley & Shapiro have argued in favor of this approach in Patent Holdup and Royalty Stacking, 85 Tex. L. Rev. 1991, 2035-39 (2007), and it seems to me that it would sometimes be a more sensible approach to the either/or solution of injunction or no-injunction.  My question--and perhaps readers in the U.K. could enlighten me here--is this:  Does a court in the U.K. have discretion to stay an injunction or otherwise delay its entry, other than for the pendency of an appeal?  In other words, could Justice Arnold have stayed the injunction for 18 months, or is there something in the applicable U.K. law that would prohibit this?  

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I will be taking a break from blogging over the Christmas holidays, and will resume shortly after the 1st of the year.  Happy holidays to my readers, and all the best in 2014.

2 comments:

  1. UK courts can stay for a specified period. Such stays have been granted to prevent harm to the public – see Terrell on Patents (17th) 19-15 – and I see no reason why disproportionate harm to the defendant could not also justify a stay. The same is true in Canada. A stay was granted in Unilever PLC v Procter & Gamble Inc. (1993), 47 CPR (3d) 479, 572 (FCTD):

    In the circumstances of this case the Court declines, as above mentioned, to issue an injunction against P & G for effect throughout the balance of the patent's term which will expire in September, 1994. The fact of the plaintiffs' never having practised the patented invention in Canada, the hardship which an injunction would inflict on the infringing defendants, and also, and especially, on their innocent employees in these hard economic times which still appear to be a full blown recession (pace Statistics Canada) in which unemployment insurance benefits payable and the level of unemployment do not need to be expanded, and by contrast, the absence of a competing workforce engaged by Lever, are all factors inter alia in the exercise of the Court's discretion. No permanent injunction is awarded.

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  2. Interesting--thank you. It seems to me, then, that an 18-month stay would have made more sense in the HTC case, rather than a stay that depends on the time it takes for an appeal to be decided (which could be more or less than 18 months).

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