EWCA Decision on Extraterritorial Damages

The decision is Anan Kasei Co. Limited and Rhodia Operations SAS v. Neo Chemicals & Oxides (Europe) Limited et al., [2023] EWCA Civ 11, lead opinion by Lord Justice Arnold.  The court dismisses the appeal from the judgment of Justice Bacon, which was handed down last March (and which I briefly blogged about here.)    Jonathan Ross has already published a detailed post on the decision on the Kluwer Patent Blog, which I commend to readers' attention, so my discussion here will be brief.

 

The patent in suit (now expired), related to the production of cerium oxide for use in a catalytic conversion process.  In earlier proceedings, the claimants had succeeded in proving that the defendants had supplied Johnson Mathey (JM), a maker of catalytic converters, with certain infringing cerium oxide products within the U.K.  After testing these products out, and in consultation with its own customers (car manufacturers), JM agreed to buy additional, more substantial quantities of cerium oxide products from the defendants; but the defendants made these products in China and supplied them to JM in Macedonia, South Africa, and the Netherlands.  (Anan at one time had a corresponding patent in China, which was invalidated, and did not have corresponding patents in the other countries.)  The claimants argued that they were entitled to recover lost profits on the sales made outside the U.K., on the theory that these sales were caused by the initial infringing activity in the U.K.  

 

The trial court held that, as a matter of law and notwithstanding the territorial nature of patent rights, a U.K. patent owner can recover lost profits on sales it would have made outside the U.K., but for the infringement, but only if those damages also were proximately caused by the domestic infringement; and that, on the evidence presented, the claimants had not proven that the foreign sales were proximately caused by the domestic infringement.  The Court of Appeal agrees.  

 

With regard to the territoriality question, the court draws an analogy to the recovery of lost profits on lost sales of convoyed goods, which English precedent permits upon proof that such losses were both factually (but-for) and legally (proximately) caused by the infringement.  The court also finds the majority opinion in the U.S. WesternGeco decision persuasive and consistent with the English approach (and the dissenting opinion of Justice Gorsuch unpersuasive).  On a personal note, I was pleased to see that the court mentioned my article Extraterritorial Damages in Patent Law, 39 Cardozo Arts & Enter. L.J. 1 (2021), stating "Prof Cotter argues that patent owners should be able to recover damages for extraterritorial losses subject to three limiting principles: first, the domestic infringement must be the cause-in-fact (or 'but for' cause) of the defendants' subsequent foreign sales; secondly, the patent owner cannot recover damages unless those sales are also proximately caused by the domestic infringement; and thirdly, there must no double recovery if the patent owner has obtained damages in a foreign jurisdiction. This analysis is consistent with my own conclusion" (para. 78).  The court also rejects the argument that permitting awards of extraterritorial damages that are factually and legally caused by the infringement would be disproportionate, or would constitute a barrier to legitimate trade, in violation of TRIPS article 41 and article 3 of IPRED.  

 

The claimants nevertheless cannot recover lost profits on the foreign sales, based on the evidence presented.  The Court of Appeal notes and agrees with the trial court's analysis, most importantly that the defendants' "sales depended not only on JM's decision as to whose cerium oxide to purchase, but also on the car makers' decisions as to which catalyst system to purchase," which in turn depended on multiple factors (paras. 113-18).  So the plaintiffs cannot recover lost profits on the alleged lost foreign sales after all, despite prevailing on the legal question.

 

One other issue that the trial court had addressed was whether it should adhere to the rule established by the House of Lords in the 1888 decision United Horse-Shoe, under which a defendant cannot avoid liability for lost profits by showing that it could have resorted to a noninfringing alternative.  The trial court concluded that it should adhere to this rule, but that it didn't matter in this case because the defendants had not proven that they could have avoided the U.K. infringement by means of a noninfringing alternative.  The issue appears not to have been taken up on appeal, and in any event the Court of Appeal notes (at para. 108) the trial court's finding that "Neo could not have supplied a non-infringing alternative which JM would have accepted."