The decision of the Patents Court (England and Wales), authored by Miss Charlotte May KC sitting as Deputy High Court Judge and handed down on September 27, is Geofabrics Limited v. Fiberweb Geosynthetics Limited  EWHC 2363 (Pat.). Claire Wilson and Eden Winslow have published a detailed summary on EPLaw and on the Kluwer Patent Blog, which I commend to readers’ attention. Although, with one exception noted below, the legal issues in the case seem fairly straightforward, the factual issues relating to the appropriate lost profits damages for the infringement of the plaintiff’s patent (for a geosynthetic railway track bed liner) were complex. The final paragraph gives you a sense of the painstaking analysis the court went into to determine the appropriate award (ultimately calculated by the parties, following the court’s factual conclusions):
284. For the reasons set out above, I have concluded as follows:
i) In the counterfactual, there would not have been an exclusive distribution agreement between the Claimant and [third party distributor] Aqua for the sales of [plaintiff’s product] Tracktex to Network Rail.
ii) All sales of [accused product] Hydrotex 2 in the actual would have been sales of Tracktex in the counterfactual, and the Claimant would have had capacity to make them.
iii) The price of Network Rail sales should be based on the 2011-2012 Network Rail price matrix, with an annual price increase of 3.25% applied every two years. The price of non-Network Rail sales should be based on the 2011-2012 Aqua price matrix, with an annual price increase of 2% applied every year. The pricing matrices should be calculated on the basis of number of rolls. There should not be an additional rebate in respect of the non-Network Rail sales beyond that included with the pricing matrix.
iv) The Claimant’s damages should be reduced by a figure of £189,008 to reflect the savings that it made from redundancies that would not have occurred in the counterfactual.
v) Future losses should be calculated by reference to a period of price depression over two years and based on Mr Chapman’s approach to estimating the ASP.
vi) The Claimant cannot recover damages based on the £6.50 Crossrail price, which is too remote.
vii) The appropriate interest rate is 2% above base.
285. The parties will need to carry out calculations in accordance with my findings. I will hear further argument on this if necessary, and in due course as to the appropriate form of order.
As stated above, the legal issues for the most part seemed fairly straightforward; the plaintiff has the burden of proving but-for causation (“that ‘but for’ the infringement, the damage would not have occurred”), but “cannot recover damages for losses that are too remote” (paras. 69-70). The court also has “discretion to award simple interest for such period and at such rate as it thinks fit” (para. 78). The part that is less straightforward relates to the “loss of chance” doctrine, which the court (after summarizing other cases and authorities) boils down to the following:
77. These authorities make clear that the “loss of chance” analysis applies if the uncertainty on quantum rests on hypothetical future events or the actions of a third party. By contrast, where the uncertainty on quantum rests on what the claimant hypothetically would have done, then this is determined on the balance of probabilities.
In the present case, the application of the rules summarized in para. 77 resulted in the court rejecting one of the defendant’s arguments for a damages reduction. Specifically, there was testimony that, in the real world, the plaintiff entered into an exclusive distribution agreement with Aqua “to avoid the risk of Aqua purchasing Hydtrotex 2 instead of Tracktex and to maintain good relations with Aqua” (para. 33). The plaintiff argued that the exclusive distribution agreement was less profitable for the plaintiff than it would have been to deal directly with end customers. The defendant countered that the plaintiff would have entered into an exclusive distribution agreement with Aqua even in the absence of the infringement, but the court disagrees:
80. The Defendant argues that the Claimant would have entered into an exclusive distribution agreement with Aqua in the counterfactual, either (i) because the Claimant would have offered it or (ii) because Aqua would have demanded it. The parties agree that I should assess (i) as a balance of probabilities because it is dependent upon what the Claimant would have done and (ii) as a % chance because it is dependent upon the hypothetical actions of a third party. That is consistent with the case law that I have set out above. . . .
111. . . . I reject the Defendant’s arguments that the Claimant would have offered an exclusive distribution agreement to Aqua in respect of all Tracktex sales. On the balance of probabilities, the Claimant would have continued the supply arrangements that were in place immediately before Hydrotex 2 came onto the market, which comprised direct supply to Network Rail and exclusive distribution via Aqua to contractors, specific projects, and non-Network rail customers. . . .
118. For all these reasons, there was no material before me upon which I could conclude that there was any real chance that Aqua would have demanded an exclusive distribution agreement, and I reject this part of the Defendant’s case also.
119. I should note for completeness that Mr Hicks also argued that even if there was a chance that Aqua would have demanded an exclusive distribution agreement in the counterfactual, then the Claimant would have refused that demand on the balance of probabilities. It was not put to Mr Donald in cross-examination that the Claimant would have agreed to an exclusive distribution agreement if Aqua had demanded one, and there was no other evidence to support this part of the Defendant’s case. Based on what I have held above, I do not have to decide this point. However, in case it matters, I would have held that it is more likely than not that the Claimant would have refused the demand if it had been made. This is essentially for the same reasons that I have given above in support of my view that the Claimant would not have been likely to offer an exclusive distribution agreement. The Claimant would not have needed to accede to such a demand, and it would not have been in its commercial interest to do so.
I’ll stop with this, and note only (as I have noted before, see here, here, and here, as well as the coauthored "Lost Profits" chapter from Patent Remedies for Complex Products, pp. 71-72) that although damages for loss of chance are available, under some circumstances, in IP disputes in (at least) the U.K., Canada, and France, to my knowledge they are not available in IP disputes in the U.S. (though a few U.S. states award loss of chance damages in medical malpractice cases). On its face, the unavailability of such damages under U.S. law seems (to me) likely to be suboptimal, but I must confess that this is a theoretical matter that I have yet to devote sufficient attention to. There is a established law-and-economics literature on the subject, including for example this recent article by Professor Robert Rhee, that I need to familiarize myself with, and would welcome any insights or further materials on point from readers.
How does the discussion of 'the counter-factual' square with United Horseshoe? (I haven't read the case.)ReplyDelete
The opinion doesn't mention United Horse-Shoe. As with the Anan Kasei case earlier this year, see http://comparativepatentremedies.blogspot.com/2022/04/anan-kasei-v-neo-important-patent.html, I suspect that the English courts have begun to recognize that United Horse-Shoe is inconsistent with general damages law, and will continue to apply it only in cases directly on point, until such time as the UKSC overrules it.ReplyDelete