|July 11, 2013|
Previously published on July 2013
In its decision in Virgin Atlantic Airways v Zodiac Seats UK  UKSC 46, the Supreme Court rejected a century-old principle, known as the “Unilin principle”. Under this principle, once the court has come to a final and non-appealable decision that a patent was valid and infringed, and a damages inquiry has been ordered, the application of the res judicata rule allows a patentee to obtain the payment of damages ordered. This applies even in the event that the patent was later found to be invalid. The Supreme Court has overturned this principle, and has found that a non-appealable judgment is not necessarily final.
Facts of the case
Virgin was the registered proprietor of a European patent (UK) (“the Patent”) granted by the European Patent Office (“EPO”). They began infringement proceedings in the High Court against Zodiac, who they alleged were manufacturing and selling an infringing product. Zodiac denied infringement and counterclaimed for revocation of the Patent on the grounds, inter alia, that it was invalid in the light of prior art. The proceedings went to the Court of Appeal, which held that: (i) the Patent was valid; and (ii) Zodiac’s product had infringed it. Accordingly, the Court of Appeal ordered an assessment of damages.
Concurrently, opposition proceedings had been initiated by Zodiac in relation to the Patent in parallel to the UK proceedings. The opposition proceedings came before the EPO’s Technical Board of Appeal (“TBA”). The TBA took a differing view on validity to the Court of Appeal and required Virgin to amend the patent. As such, the patent was deemed to have always existed in the amended form.
The issue before the Supreme Court was whether Virgin was entitled to recover damages on the basis of the Court of Appeal’s judgment or whether Zodiac was entitled to contend that there were in fact no damages, as the Patent was retrospectively amended, thus removing the claims held to have been infringed.
In his leading judgment, Lord Sumption carried out a review of the modern law on res judicata, which he described as a portmanteau term. Of particular relevance were:
(i) “Cause of Action” estoppel: once a cause of action had been held to exist or not to exist, that outcome may not be challenged by either party;
(ii) the principle that where a claimant succeeded in the first action, and did not challenge the outcome, they were estopped from bringing a second action on the same cause of action, e.g. to recover further damages; and
(iii) the principle first established in Henderson v Henderson  3 Hare 100,115, which precludes a party from raising in subsequent proceedings matters which they had failed to raise in earlier proceedings, but should have.
The Supreme Court held that Zodiac cannot be precluded from relying on the TBA’s decision on the enquiry as to damages. The Court held that Zodiac relied on the more limited terms of a different patent, which, given TBA’s decision, must be treated as the one that was in existence at the relevant time, not the unamended patent that Virgin relied upon. The Supreme Court established that Zodiac was not trying to reopen the question of validity; it was relying on the fact of amendment, not the reasons for that amendment.
The Court of Appeal reached a different conclusion to the Supreme Court as it had followed a line of cases culminating in Unilin Beheer BV v Berry Floor NV  FSR 635, which established the eponymous “Unilin principle”. These cases were based on the supposition that a final, non-appealable decision that a patent was valid and infringed created a cause of action estoppel, one of the branches of res judicata. Under this principle, the patentee has an inalienable right to recover damages from a defendant once final decision has been handed down, and no change in circumstances could derogate from this right.
Effect of the Supreme Court’s Decision
A party is now able to rely on a subsequent fact such as the revocation or amendment of a right to contend that it should not be liable for damages.
The judgment also raises further questions that were left unanswered by the Supreme Court. The position of a party where damages had been assessed by the Court but not paid, or similarly, a party who had already paid damages for claims subsequently revoked, is not settled. Without explicitly stating as such, Lord Neuberger’s judgment certainly raises the prospect that a party who has paid damages may later seek to recover the monies it has paid out if the rightholder’s right is subsequently revoked.
Further, the Supreme Court held that the lower courts should re-evaluate the guidance on stays of English proceedings pending the outcome of opposition proceedings in the EPO, as were set out in Glaxo Group v Genentech Inc. (Practice Note)  Bus LR 888. In the light of this judgment, it seems likely that courts will allow stays of proceedings pending the outcome of EPO opposition proceedings.