Preparing for IP Litigation - "getting your ducks in a row"
Introduction
Before threatening or commencing legal proceedings involving any IP right or claim, a potential claimant should prepare thoroughly. The following are some of the issues that a potential claimant and, in some cases, a potential defendant, should bear in mind before deciding to threaten, commence, or defend, IP litigation.
(a) Assessing what IP rights are involved
There may be several IP rights you can rely upon to bring legal proceedings against a potential defendant. Some rights may be stronger than others and easier to assert and enforce against a defendant.
You need to carry out an evaluation of what rights are relevant and can be asserted before threatening or commencing legal proceedings.
(b) Assessing the ownership and validity of the IP rights
It is important to investigate and determine who owns the IP rights in issue. Sometimes a potential claimant does not own the IP rights which he asserts against a potential defendant, and thus will not have title to sue and his claim will fail.
It is also important to check the status and validity of the IP rights in issue. Not all IP rights are valid, even if they are registered, especially patents and registered designs. They are often wrongly granted and can be invalidated by way of a counterclaim brought by a defendant to infringement proceedings.
If the potential claimant knows that there is an issue concerning the validity of his IP right, he may decide to be less aggressive in his approach to the potential defendant. He may prefer to try to settle the dispute by way of licensing the defendant, rather than facing a situation whereby if he sues the defendant he is likely to see his IP right being declared invalid. By avoiding such a situation at least the IP right will remain in existence and can be asserted against other businesses (e.g. those that do not have the financial muscle, or are not as well prepared or informed).
(c) Assessing who should be the defendant
Before a potential claimant threatens or issues proceedings, he should be certain that the person he names as defendant is the person who carried out the acts of infringement.
Also, there may be more than one potential defendant and a claimant can choose which of several potential defendants he wants to sue. He does not have to sue them all (e.g. if one of them has no/little assets).
(d) Consider likely defences and possible counterclaims
No claimant should proceed without first considering and evaluating the likely defences and counterclaims that the defendant will rely upon and bring against the claimant.
Typical defences may include alleging that the claimant's IP rights are invalid, or that the claimant does not own the IP rights in issue. The defendant may also argue that the acts of which the claimant makes complaint do not constitute infringement of the claimant's IP rights, for example because the defendant has a licence to do what he has done.
If a claimant starts Court proceedings, the Defendant may file a counterclaim against him, alleging that the IP rights in issue should be invalidated or revoked, and/or for some other claim. The value of the counterclaim could exceed the amount of the claimant's claim. Also, if a counterclaim is lodged, this may significantly increase costs.
(e) Internal steps
Prior to threatening/commencing proceedings, a number of internal steps, within the potential claimant's organisation, should be undertaken.
Staff should be briefed of impending litigation. By explaining to staff what action is going to be taken and what they are permitted to say/do (e.g. to the press), inadvertent comments/disclosures/admissions will not be made. They should also be warned not to make any 'threatening' statements or comments to the potential defendant. This should hopefully prevent the possibility of a 'threats' action being brought against the potential claimant.
Relevant members of staff should be told of the necessity of preserving all documentation that may be relevant for the purposes of the proceedings. All internal policies of reviewing and destroying old files, documents and emails (and all other electronic documentation and communications) should be suspended until it has been ascertained whether those items could be relevant to the anticipated legal proceedings. A party to litigation has to disclose not only the documents upon which they rely, but also any relevant documents that adversely affect their case.
Staff should be advised against creating any new documentation which is relevant to the case and which would not be privileged. For example, if a member of staff produces a document that discusses the merits of his employer's legal case, then this may not be privileged and may have to be disclosed to the other side at the disclosure stage (see further below). It is important that staff understand that emails qualify as documents for the purposes of disclosure.
Details of potential witnesses who are members of staff/officers of the claimant company (and who may be needed for the purposes of giving evidence in any legal proceedings) should be collated (i.e. details of how and where they can be contacted, especially if there is a risk that contact with them may be lost (e.g. an employee of the potential claimant who is about to leave)). In most cases it would also be worth taking an initial draft statement from a potential witness, so that this can be used to refresh their memory if they are required to give evidence in the future.
(f) The financial positions of the parties
The more complex a claim (and hence the greater the amount of documentation involved, the number of witnesses that may have to be called to give evidence and the need for expert opinion), the more expensive it is likely to be to bring/defend. Therefore, consideration should be given at the outset as to whether the parties can afford to litigate.
Is the financial position of the claimant such that the defendant would be able to ask the Court for an order for security for costs (i.e. because the claimant is insolvent/of very limited financial means)?
If the financial position of the potential defendant is weak, the claimant must appreciate that, even if he succeeds at trial, he will not necessarily be able to recover all of his costs and any damages awarded against the defendant. It is possible that the defendant may, by that stage, be insolvent. This may encourage the claimant to try to seek the best settlement it can achieve at a very early stage.
The financial positions of the parties will also be a relevant factor for the Court when deciding whether to grant an interim injunction.
(g) Assessing the commercial positions of the parties
Whilst both the potential claimant and defendant may be financially able to fund litigation, there may be commercial factors which mean that one or both parties would prefer not to litigate. Equally, the commercial position of one or both of the parties may be such that they have no choice but to bring/defend legal proceedings.
Relevant individuals within the claimant/defendant company may not have the time to engage in a lengthy Court process (e.g. due to other more pressing business needs). Will the time cost of bringing/defending proceedings outweigh the commercial importance of the litigation in the context of the company's future business plans/needs?
The potential claimant and defendant may have an ongoing business relationship that would suffer if litigation were to be commenced. This may encourage the parties to look to resolve their differences without having recourse to the Courts.
(h) Gathering evidence
In most IP cases it will be appropriate to gather together significant amounts of evidence prior to threatening/commencing legal proceedings.
For example, it may be prudent to use the services of a private investigator. They often approach a potential defendant under the pretext that they are a potential purchaser of their infringing goods. The private investigator may be able to ascertain the names and addresses of everyone in the distribution chain, so that all of the potential defendants are known at the outset. A decision whether or not to pursue them can then be made by the potential claimant.
Potential witnesses of fact, whose evidence may be needed for the purposes of any subsequent legal proceedings, should be located, spoken with and contact details kept.
Whilst gathering evidence prior to threatening/issuing proceedings front loads the costs of the potential claimant, proper preparation will enable him to have a better grasp of the strengths/weaknesses of his case at the outset and will also enable him to comply with the Civil Procedure Rules("CPR") and the Practice Direction to the Pre-Action Protocols. Early evidence gathering enables a potential claimant to be able to exchange information and documents relevant to a claim with a potential defendant prior to issuing proceedings, so as to ascertain whether proceedings can be avoided and, if not, to ensure that both parties understand the issues sufficiently to ensure that any litigation is dealt with proportionately.
As soon as the possibility of legal proceedings arises, consideration should be given to documents which may be relevant for the purposes of the proceedings and which may have to be produced to the other side on 'disclosure'. A thorough review of all relevant documentation is prudent. For example, if the potential claimant is in possession of documentation which is not helpful to its case (e.g. an admission that the claimant does not regard the defendants acts as infringing acts), it is much better if it is found and brought to the claimant's legal advisers attention at the outset, before proceedings have been threatened/commenced.
(i) Expert evidence
In some IP cases it may be appropriate to retain an independent expert at the outset, before legal proceedings are threatened/commenced. This is because in certain IP cases (e.g. patent disputes) expert evidence can be the key determinant as to whether the claim will succeed.
In cases where it is highly likely that expert evidence will be required, the earlier an independent expert witness is appointed the better. This will enable the potential claimant to obtain an objective opinion on the likelihood of it succeeding with its claim, prior to it issuing proceedings, incurring substantial legal costs and opening itself up to the possibility of a costs order being made against it (i.e. if its case fails on the merits).
The expert can help the potential claimant to identify weaknesses in his case and, in some cases, to advise how they might be overcome.
(j) Mediation and Alternative Dispute Resolution procedures ("ADR")
Mediation and other forms of ADR should be seen as a routine step to consider prior to the issue of legal proceedings.
In contractual disputes involving IP rights there may even be a contractual obligation on the parties to attempt to resolve their dispute via mediation, or some other form of ADR, prior to litigation being commenced.
Mediations take place in private and are entirely confidential. The mediator encourages the parties to talk openly about their positions and feelings about the case. The mediator has no interest in the outcome of the mediation and will not offer the parties advice. He does not act as a judge and cannot impose a settlement on the parties. The mediators job is to help the parties to identify what they wish to achieve, assist them in considering possible solutions (which are not always financial) and, in a successful mediation, to help them agree terms of settlement.
Mediations are usually held on a 'without prejudice' basis to any on-going or subsequent Court proceedings. This means that, if mediation is unsuccessful and the matter proceeds to trial, the trial judge will not be told of the outcome of the mediation. The parties are also not permitted to raise at a trial any disclosures or admissions made during the course of mediation.
However, if a Court considers a losing party has refused unreasonably to mediate, this refusal can be brought to the attention of the judge at the end of the trial, in relation to the level of costs that party should pay or receive.
(k) Part 36 offers to settle/'without prejudice' communications
Even if a formal mediation process may be thought inappropriate, other mechanisms for trying to resolve the dispute before proceedings have been issued remain available to the parties.
For example, a claimant could serve on the defendant a 'without prejudice save as to costs' letter (otherwise known as a 'Calderbank letter'), setting out the basis on which the claimant would be willing to settle the dispute. Should the dispute end up at trial, this letter can then be relied upon by the claimant on the question of costs. Alternatively, a claimant could make a Part 36 Offer to settle, in accordance with the provisions of CPR Part 36. The Court Rules provide that the Court will take such an offer into account when making any order as to costs, even though the offer was made before the commencement of proceedings. A well crafted Part 36 Offer made at an early stage in a dispute can therefore put considerable financial pressure on a defendant to settle the dispute at that stage, rather than to proceed to trial.
(l) Urgency/Limitation
In some IP cases it is extremely important to act quickly.
For example, if the limitation period is shortly to expire (usually 6 years from the act of infringement in the case of most IP infringement disputes) then, in order to preserve the claim, legal proceedings will have to be issued forthwith (but not necessarily served), possibly even before a letter before action has been sent to the potential defendant.
Also, there may be an urgent need to obtain an interim injunction to prevent the defendant continuing to do what he is doing until the full trial of the legal proceedings. If so, speed of action will be a necessity.
(m) What is the claimant's loss?
Whilst the potential claimant's IP rights may be being infringed, is he suffering any loss as a consequence?
In cases where the IP rights owned by the potential claimant are not being exploited in the UK (whether by the potential claimant or any licensee), the potential claimant's remedy in damages may only be a royalty payment (i.e. on the hypothetical basis that the claimant was a willing licensor who was willing to license the IP rights to the infringer, who was a willing licensee, prepared to pay market value rates for a licence of the IP rights). This will require evidence to be put before the Court as to typical market rates.
(n)Pulling out
Once a claimant has begun Court proceedings, he cannot simply withdraw from or stop them. If he did, unless a settlement is agreed with the other side, he will almost certainly have to pay the defendant's costs of defending the proceedings, and also meet any counterclaim. Therefore, it is important to ensure that, before bringing proceedings, the claimant is prepared to follow them through all the way to trial.
(o)Jurisdiction and Governing Law
What law governs the dispute? Is it set out in any contract that is relevant to the dispute (e.g. a licence agreement)?
Which Courts have the right and in which countries to hear the dispute?
Would it be better to litigate before one Court or venue rather than another (e.g. the UK Intellectual Property Office, rather than the High Court, because of the cost savings?)
These questions should be asked and the answers considered before any formal procedural steps are taken.
Ashfords is regulated by the Solicitors Regulation Authority. The information in this article is intended to be general information about English law only and not comprehensive. It is not to be relied on as legal advice nor as an alternative to taking professional advice relating to specific circumstances.
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