Patents - IPCom GmbH & Co Kg v Vodafone Group Plc

 

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Jane Lambert

Court of Appeal (Lord Justice Lewison, Lady Justice Asplin and Lord Justice Arnold) IPCom GmbH & Co Kg v Vodafone Group Plc and others  [2021] EWCA Civ 205 (19 Feb 2021)

This was an appeal by both sides against the judgment of Mr Recorder Campbell QC in IPcom GmbH & Co Kg v Vodafone Group Plc and others [2020] EWHC 132 (Pat) (28 Jan 2020).  That had been a claim by IPCpm GmbH & Co Kg against several companies in the Vodafone group for infringement of European Patent (UK) number EP2579666B1for Allocation of access rights for a telecommunications channel to subscriber stations of a telecommunications network. Mr Justice Birss had ordered the trial to dispose of some of the issues in a wider dispute over whether the Vodafone companies were obliged to take a licence from IPCom on FRAND (fair, reasonable and non-discriminatory) terms in order to comply with an ETSI technical standard known as 3GPP TS 36.331, version 12.

Proceedings before the Recorder

At para [9] of his judgment, Mr Campbell listed the issues he had to decide:

"a) Construction of the unconditionally amended claims.
b) Allowability of the unconditionally amended claims.
c) Construction of the conditionally amended claims.
d) Allowability of the conditionally amended claims.
e) Obviousness in the light of the prior art.
f) Essentiality of both sets of claims.
g) Vodafone's non-infringement arguments in relation to its real systems. This includes two less commonly run defences: one of Crown use pursuant to s 55 of the Patents Act 1977, and one that any infringement was de minimis.
h) Vodafone's counterclaim for declarations of non-infringement."

He summarized his determination at [249]:

"1) The added matter attack against unconditional claim 1 succeeds in part. However the attack on allowability of conditional claim 1 fails.
2) Vodafone's argument of obviousness based on GSM/GPRS and IS-95 fails.
3) If and insofar as the option to perform access control in accordance with 3GPP TS 36.331, version 12 is being exercised, then:
a. unconditional claim 1 would have been essential if it had been valid
b. conditional claim 1 is essential, as is unconditional claim 13; and
c. similar conclusions follow for claims dependent thereon.
4) Vodafone has a good defence of Crown use in relation to acts done in relation to the MTPAS scheme.
5) None of Vodafone's acts of alleged infringement benefits from any de minimis defence.
6) Some of the methods set out in IPCom's Group 1 (namely Annexes E and F to Vodafone's PPD) infringe. The method of Annex C does not infringe, but this is because it benefits from the Crown use defence. Acts done in relation to the apparatus set out in IPCom's Group 2 (ie PPD Annex B) do not infringe.
7) IPCom's allegation of indirect infringement in relation to SIM cards fails.
8) Vodafone's application for DNIs in relation to Alpha, Beta, and Gamma base stations succeeds."

The Appeal

IPCom challenged the recorder's construction of claims 1 and 7 of the conditionally amended claims which underpinned his conclusion of non-infringement in some cases and his conclusion that Vodafone had a defence of Crown use in others.  The Vodafone companies challenged Mr Campbell's construction of the conditionally amended claims which underpinned his findings of infringement, a finding of infringement by equivalents and his conclusion that the conditionally amended claims were valid. Those companies also contended that any infringement was de minimis. Finally, they challenged the form of the recorder's declaration on essentiality. The Secretary of State for Defence with the support of other government departments intervened to challenge Mr Campbell's conclusion on Crown use and in particular his interpretation of s.55 (1) of the Patents Act 1977.

Judgment

The Court of Appeal dismissed both appeals except for IPCom's appeal on Ctown use.   The lead judgment was delivered by Lord Justice Arnold.  Both Lady Justice Asplin and Lord Justice Lewison agreed with Lord Justice Arnold.   Lord Justice Lewison delivered a short judgment on the interpretation of the term "access right" between paras [212] and [224] but his judgment did not affect the Court's ruling on any issue.

Construction of the Conditionally Amended Claims

The conditionally amended claims were claim 1, claim 5, claim 6 and claim 7.  Lord Justice Arnold broke them down into integers and set them out between para [43] and [46] of his judgment.  The learned lord justice listed the Vodafone companies' criticisms of the recorder's construction of those claims at [53].   He noted at [54] that each claim had to be interpreted from the perspective of a skilled addressee in the light of his or her common general knowledge and having regard to the inventor's purpose.

The learned lord justice identified the skilled addressee at para [7] and his, her (or, as the addressee was likely to be a team of engineers concerned with developing mobile phones for use in the UMTS (3G) mobile telecommunications standard) their common general knowledge between paras [8] and [22]. He then analysed the specification between para [23] and para [42].   As Mr Recorder Campbell had not stated the inventive concept in his judgment, the learned lord justice asked each of the parties to submit definitions.  Applying the methodology mentioned in the previous paragraph, Lord Justice Arnold considered each of Vodafone's criticisms of the recorder's construction but could find no flaw in the recorder's reasoning.

Validity of the Comditonally Amended Claims

The learned lord justice explained the significance of this challenge at para [74] of his judgment:

"There is no dispute that, if the amendments to claim 1 are impermissible for this reason, then the same objection feeds through into the other claims. The consequence would be to leave IPCom without any claims it could assert (since the granted claims have been abandoned and the unconditional amendments were unallowable)."

The amendments were challenged under s.76 (3) (b) of the Patents Act 1977 which provides that no amendment of the specification of a patent shall be allowed if it extends the protection conferred by the patent.  Vodafone presented a hypothetical example of a possible extension of the protection afforded by the patent as a result of the amendment.  Mr Campbell had rejected that example as implausible.  His rejection was challenged on appeal.  Lord Justice Arnold dismissed the objection on the ground that the example presupposed a circumvention of the patent which would mean that the patent would not have been infringed.

Essentiality

"Essentiality" in this context means whether compliance with a standard necessitates the use of a patent.  A patent that is essential for compliance with a standard is sometimes called a SEP ("standard essential patent") (see Jane Lambert FRAND 8 Oct 2017).  IPCom contended that the patent was essential to the ETSI standard mentioned above. The recorder agreed with IPCom with regard to conditional claim 1, unconditional claim 13 and their dependent claims. Vodafone challenged the recorder's findings for the reasons set out between paras [91] and [117]. Lord Justice Arnold refused to entertain the objections because they contradicted the recorder's findings of fact.

Crown Use

S.55 (1) (a) (i) of the Patents Act 1977 provides:

"(1) Notwithstanding anything in this Act, any government department and any person authorised in writing by a government department may, for the services of the Crown and in accordance with this section, do any of the following acts in the United Kingdom in relation to a patented invention without the consent of the proprietor of the patent, that is to say;
(a) where the invention is a product, may;
(i) make, use, import or keep the product, or sell or offer to sell it where to do so would be 42 incidental or ancillary to making, using, importing or keeping it;"

Mr Campbell had found that Vodafone used the patented invention for the services of the Crown under a scheme known as the Mobile Telecommunications Privileged Access Scheme ("MTPAS") whenever its ground stations responded to an emergency under the scheme or whenever the ground stations were tested for that purpose.  The recorder also held that compensation for the infringement of the patent would be payable by the government and not by Vodafone.

Lord Justice Arnold reviewed the legislative history of s.55 beginning with the decision of the House of Lords in Dixon v London Small Arms Co Ltd (1876) 1 App Cas 632. He concluded that the general tenor of the speeches was that if the Crown use defence was to apply it could only do so if use of the patented invention without the consent of the patentee either had been expressly authorized by the Crown or such authorization was necessarily to be implied.  He noted that the decision in Dixon had led to s.27 of the Patents, Designs and Trade Marks Act 1883:

"Patent to bind Crown.
(1) A patent shall have to all intents the like effect as against Her Majesty the Queen, her heirs and successors, as it has against a subject.
(2) But the officers or authorities administering any department of the service of the Crown may, by themselves, their agents, contractors, or others, at any time after the application, use the invention for the services of the Crown on terms to be before or after the use thereof agreed on, with the approval of the Treasury, between those officers or authorities and the patentee, or, in default of such agreement, on such terms as may be settled by the Treasury after hearing all parties interested."

He mentioned that S.27 of the 1883 Act had been replaced in substantially the same terms by s.29 of the Patents and Designs Act 1907 and that provision was itself replaced by s.8 of the Patents and Designs Act 1919. He considered the decision of Mr Justice P O Lawrence in Pyrene Co Ltd v Webb Lamp Co Ltd (1920) 37 RPC 57 that a company that had made a patented product at the government's request during the first world war had a good defence to a claim of patent infringement under the Crown use exception. The lord justice also referred to AG for Autogene Aluminium Schweissung v London Aluminium Co Ltd (No 2) (1923) 40 RPC 107, Pfizer v Ministry of Health [1965] AC 512, Dory v Sheffield Health Authority [1991] FSR 221, s.46 of the Patents Act 1949 and art 31 of TRIPs before analysing s.55 to s.59 of the 1977 Act.

At trial, Vodafone had contended that the Crown use defence extended to an authorization to do a particular act even if that act did not necessarily involve infringing a patent.  IPCom argued that the defence required either an express authorization to work the patent or authorization to do a particular act in circumstances where the patent would necessarily be infringed. Intervening in the appeal, the Secretary of State for Defence said that the defence required an express authorization to work the patent in question or at least authorization to work a patent. That was important because it was technically possible to comply with MTPAS without infringing the patent. Moreover, Vodafone never received an actual MTPAS request during the relevant time though the Vodafone companies did test their system regularly to ensure that they would be in a position to comply with such a request were they ever to receive one.  In his judgment, Mr Campbell had agreed with Vodafone.  

Lord Justice Arnold criticized both the recorder's decision and the contentions of the Secretary of State for Defence for the following reasons:

"[150] First, there is the language of section 55(1). This states that "any person authorised in writing by a government department may … do any of the following acts in relation to a patented invention without the consent of the proprietor of the patent … and anything done by virtue of this subsection shall not amount to an infringement of the patent concerned [emphasis added]". The judge thought that the third construction was the most natural interpretation of this language. I respectfully disagree. The authorisation must be an authorisation to do acts in relation to a patented invention, not merely an authorisation to do acts.
[151] Secondly, although section 55 (1) extends beyond agents of the Crown, the concept of authorisation is one which is familiar from the law of agency. In that context actual authority may be either express or implied. The usual basis for implication is necessity (as it is in the case of implied terms in contracts). It is difficult to see why section 55(1) should exclude an authorisation to do an act which necessarily infringes a patent. It is equally difficult to see why it should extend to an authorisation to do an act which does not necessarily infringe a patent. I will return to this point below.
[152] Thirdly, for the reasons explained above, I consider that Dixon, Pyrene and Autogene support the second interpretation. Although the facts of all three cases pre-dated the introduction of the requirement for authorisation in writing, and in the case of Dixon any statutory provision, the reasoning remains persuasive. The judge thought that the case law showed a divergence of judicial opinion between the second and third interpretations, but that is not how I read it.
[153] Fourthly, the second interpretation has the support of successive editors of Terrell over the course of nearly a century. It is to the judge's credit, as an editor of Terrell since the 16th edition, that he was open-minded and prepared to reach a different conclusion; but the editors' view remains persuasive.
[154] Fifthly, as counsel for SSD submitted, it is difficult to see why retrospective authorisation under section 55 (6) would be necessary if an authorisation to do an act was sufficient. This is illustrated by the Dory case, where the allegedly infringing machines had been purchased by the NHS. It is inherently probable that the purchases were made under one or more written contracts, yet a retrospective authorisation was clearly considered to be necessary.
[155] Sixthly, I do not accept the submission of counsel for SSD that section 55 (7) demonstrates that express authorisation is required. If, as SSD also contends, an authorisation to work any patent would suffice, it might be very difficult, if not impossible, for the relevant Government Department to comply with this obligation. The same is true if an authorisation to do any act would suffice. In my view section 55(7) suggests that the authorisation must either be an express authorisation to work a specific patent or an authorisation to do a particular act which necessarily involves working a specific patent.
[156] Seventhly, I do not accept the submission of counsel for SSD that express authorisation is required for the Crown to make an informed decision. He postulated an example in which an invitation to tender is put out the performance of which requires the use of a patented invention. Contractor A, who is ignorant of the patent, bids without allowing for the cost of obtaining a licence. Contractor B, who knows of the patent, makes an allowance for the cost as a result of which his bid is higher and he loses the contract to Contractor A. Contractor A having won the contract is then threatened with infringement proceedings. If he were able to plead that he had an implied authorisation for Crown use, he would be able to offload the cost of compensating the patentee onto the Crown, negating his competitive advantage at the bidding stage and possibly even causing the Crown a loss. Counsel submitted that such an outcome cannot have been within the contemplation of the legislature and should accordingly be rejected.
[157] I do not think that this example supports SSD's interpretation. If performing the contract necessitates working the patented invention, on the second interpretation the authorisation will cover this. Then both A and B would have the benefit of a Crown use defence if they won the contract. Accordingly B would not need a licence from the patentee and would not have to allow for the cost of royalty payments to the patentee. It may be the case that the Crown ends up with higher costs (as a result of compensating the patentee) than it anticipated if it did not know about the patent; but the same would happen if an express authorisation was granted to work any invention and that turned out to cover a patent which the Crown did not know about.
[158] On the other hand, a variant of this example does support SSD's and IPCom's case that the third interpretation cannot be correct. Suppose a contract is let which can be performed either by working the patent or by not working the patent. Contractor A chooses to work the patent, while Contractor B chooses not to. Both quote the same price, and the contract goes to A. On the third interpretation A has a Crown use defence, and the Crown is landed with the costs of compensating the patentee even though the Crown may not have known of the existence of the patent. By contrast, on the first or second interpretations, the Crown can, once it discovers the patent, make an informed decision as to whether or not to grant a retrospective authorisation to A.
[159] Eighthly, the judge considered that the third interpretation was "much easier to operate" than the second interpretation since the only question which needed to be answered was whether the act in question was duly authorised. It is true that the third interpretation avoids having to consider the question of necessity, but I do not agree that this means that section 55 (1) is easier to operate. On the contrary, for the reasons given above, I consider that the third interpretation places a much greater burden on the Crown than the second.
[160] Ninthly, the judge considered that the third interpretation was supported by an example postulated by Vodafone in which an act can only be done in one of two ways, each of which infringes a different patent. I agree that it follows from the first and second interpretations that, if the Crown merely authorises the act, then there is no defence of Crown use either way. I do not see, however, why this shows that the third interpretation is to be preferred. On the contrary, it would potentially expose the Crown to a greater liability if the contractor chose to work a patent which was subject to a higher royalty rate than the other. By contrast, the first and second interpretations would enable the Crown, if it chose, expressly to authorise the working of the lower cost patent.
[161] Tenthly, the judge considered that the burden more fairly rested upon the person authorising the acts than on the person doing them. I disagree with this. In the normal commercial scenario where A buys goods from B, then in the absence of express contractual terms B impliedly warrants, as part of the warranty of quiet possession, that the goods do not infringe third party intellectual property rights: see Microbeads AG v Vinhurst Road Markings Ltd [1976] RPC 19. Thus the burden is on the supplier to ensure that the goods are non-infringing or licensed, not on the purchaser. This makes sense: the supplier is in a position to know what technology it is using, to conduct patent searches and take legal advice, to negotiate for a licence if required and to re-design if necessary. I do not see why the position should be different here if the Crown does not authorise use of the patent either expressly or by necessary implication.
[162] Counsel for Vodafone emphasised the difficulty, particularly in the context of standardised telecommunications networks, of conducting freedom-to-operate analyses. Patents can be hard to find (although over-declaration of patents as being standard-essential is a much more common problem than under-declaration), and being confident as whether to a particular patent is essential to the operation of a particular standard can be even harder, particularly now that the United Kingdom has embraced infringement by equivalents. I accept that, but I do not see that it supports the third interpretation. It remains the case that suppliers are better placed to conduct such analyses than purchasers, including the Crown. Moreover, as discussed above, the Crown should not be unduly exposed to unforeseen liabilities.
[163] Eleventhly, we heard a certain amount of argument as to Crown practice with respect to contractual terms. We were informed that, unsurprisingly, the Crown often contracts on terms that either expressly provide that no authorisation is granted under section 55 or require the supplier to indemnify the Crown against any liability under section 55. I do not see that this assists in interpreting the requirement for authorisation, however.
[164] Twelfthly, I accept the submission of counsel for IPCom that policy considerations support a narrow rather than a broad interpretation of section 55 (1): as discussed above, the policy which underpins section 55 (1) is one of respect for private intellectual property rights unless State exploitation is in the public interest and in that case the owner of the right is to be notified and compensated.
[165] Lastly, it is common ground that, if possible, the 1977 Act should be interpreted consistently with TRIPs. I consider that the first and second interpretations of section 55 (1) are more consistent with Article 31 of TRIPs than the third. There are a number of aspects to this point.
[166] It is common ground that section 48A is intended to comply with Article 31. Contrary to the suggestion advanced in Vodafone's skeleton argument, this is irrelevant. What matters is whether section 55 is compliant. Evidently the Government considered in 1999 that section 55 did not require amendment in order to comply with Article 31. The question is whether, on a proper interpretation, it is compliant.
[167] Article 31 (b) requires prior negotiation with the right holder. Vodafone contend that section 55 reflects the two exceptions to Article 31 (b): the first being "national emergency or other circumstances of extreme urgency" and the second "public non-commercial use". I will consider these in turn.
[168] So far as the first exception is concerned, it appears to me that this is primarily implemented by section 59 of the 1977 Act. The effect of section 59 is to widen the class of uses that qualify as services for the Crown in an emergency, and hence enable use of patented inventions to be authorised, including retrospectively. Counsel for Vodafone submitted that the procedure prescribed by section 59 was too slow, but the COVID-19 pandemic has shown that Parliament can approve secondary legislation very rapidly indeed if required.
[169] In any event, I am not persuaded by Vodafone's argument that the need for authorisations to be granted speedily in some circumstances supports the third interpretation of section 55(1). It seems to me to be entirely neutral. (Although it is immaterial to the issue of construction, I would add that I also do not accept Vodafone's suggestion that the need for urgent authorisation is illustrated by the facts of the present case. The relevant authorisation in the case of MTPAS is the Cabinet Office documentation, which was not issued in circumstances of urgency, but by way of careful advance planning.)
[170] Turning to the second exception to Article 31 (b), this is limited to "public non-commercial use". In my view section 55 extends beyond that, including for example to sales for foreign defence purposes (i.e. of arms to foreign Governments) and the supply of specified drugs: see section 56(2)(a),(b) and (3). Even if MTPAS qualifies as public non-commercial use, as Vodafone contend, that is beside the point.
[171] To the extent that section 55 extends beyond the two exceptions, the possibility conferred by section 55(6) for retrospective authorisation is inconsistent with Article 31(b). The more broadly section 55(1) is construed, the more inconsistent it is.
[172] Furthermore, neither of the exceptions to Article 31 (b) applies to Article 31 (a), which requires authorisation of the use of the subject matter of a patent to be "considered on its individual merits". As IPCom and SSD contend, the third interpretation of section 55 (1) is inconsistent with this requirement. SSD contends that only the first interpretation is consistent with it, but I consider that the second interpretation is at least as, if not, more consistent with it given SSD's stance that an express authorisation may be in respect of any patent."

For those reasons, he allowed IPCom's appeal on Crown use but relieved the Crown of any liability to compensate IPCom. 

De Minimis Use

The words "de minimus" are short for the maxim "de minimis non curat lex" which is usually translated as "the law does not concern itself with trifles". The Vodafone companies argued at trial that they had used the system only to test the MTPAS system, that such use was on a very small scale and commercially insignificant.  Mr Campbell accepted that the actual volume of the acts concerned was very small but not that it was commercially insignificant. He considered that Vodafone's participation in MTPAS was a small but significant part of the companies' commercial operations as a network provider. Vodafone argued that the recorder was wrong in law.

Lord Justice Arnold referred to paras [147] to [149] of his judgment in Napp Pharmaceuticals Holdings Ltd v Dr Reddy's Laboratories (UK) Ltd [2016] EWHC 1517 (Pat):

"[147]. In the present case counsel for Napp accepted that the de minimis principle applied to claims for patent infringement. Moreover, he accepted that, to take an extreme example, if only one patch in a trillion (1012) fell within the claim, then the Defendants would not infringe the claim. He nevertheless submitted that the Defendants would infringe if larger, but still very small, proportions of their patches infringed. By way of illustration, he postulated a scenario in which it could be shown that, out of 2 million patches sold by a defendant between now and the expiry of the Patent, 200 fell within the claim (i.e. 1 in 10,000 or 0.01%). He argued that a defendant who sold just 200 patches which fell within the claim would undoubtedly infringe, and that it made no difference if the 200 patches constituted a single hour's production out of a year's worth of production, nor even if the 200 patches were randomly distributed amongst 1,999,800 non-infringing patches.
[148]. I can only say that I disagree. It seems to me that most people, and specifically the skilled person, would be very surprised by the proposition that selling products only 0.01% of which fall within the claim constitutes patent infringement, particularly where the 0.01% are randomly distributed among the remainder. I consider that this is precisely the kind of situation covered by the de minimis principle.
[149]. Furthermore, while I accept the force of Lord Phillips' warning [in Sienkiewicz v Greif (UK) Ltd [2011] UKSC 10, [2011] 2 AC 229 at [108]] about the dangers of trying to define a quantitative limit, it seems to me that, for reasons which will become clear, in the present case the court is forced, as a matter of practical reality, to draw a line somewhere. Where that line should be I will consider below."

Applying those principles, Lord Justice Arnold found that the MTPAS operation had been commercially significant even if they were not remunerative and were not on a large scale.  He upheld the judgment of the court below.

Obviousness

At trial, Vodafone had argued that the invention was obvious over Interim Standard 95 having regard to the skilled addressee's common general knowledge when the claims were properly construed.  The recorder rejected that contention for the reasons quoted by Lord Justice Arnold at para [191] of his judgment. Vodafone criticized those reasons on appeal and Lord Justice Arnold agreed with such criticism.  Notwithstanding that criticism, Lord Justice Arnold found that the recorder's findings were sufficient to support a finding of obviousness.  He concluded that Mr Campbell had been right to reject Vodaforne's argument on obviousness though for different reasons.

Declaration of Essentiality

The Vodafone companies objected to the recorder's declaration that operating access control in accordance with 3GPP TS 36.331, version 12, section 5.3.3.11  necessarily infringed claims 1 and 7 of the patent and those claims were accordingly essential to the implementation of the method.  They argued that the declaration should have been qualified with the words  "if and insofar as the option … is being exercised" because the recorder had accepted that it was possible to avoid exercising the option.  The learned lord justice dismissed the objection on the grounds that the formulation of a declaration lay within the discretion of the trial judge and that there were no grounds for disturbing it.

Comment 

In FRAND - A Recap 8 Aug 2020 I wrote:

"Disputes between patentees and implementers can take years to resolve. The usual procedure is for courts to order one or more "technical trials" to determine the validity and essentiality of a patent and whether it has been infringed followed by a "non-technical trial" to determine the terms of the licence."

In most technical trials, the issues are whether the patent is valid, whether it is infringed and whether it is essential to the standard.  This case was unusual in that the implementers (that is to say, the Vodafone companies) pleased two additional defences which are not usually available, namely Crown use and that the infringements were de minimis.   There are not many authorities on either issue so this case is likely to be cited on both points.

Anyone wishing to discuss this article or any of its issues may call me during office hours on +44 (0)20 7404 5252 or send me a message through my contact form.

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