DYSON TECHNOLOGY LTD AND ANOTHER v. GERMAN POOL GROUP CO LTD AND OTHERS

HCA 838/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 838 of 2011

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D E C I S I O N

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Introduction

1.  The plaintiffs in this litigation are companies within the Dyson Group of companies, which are well known manufacturers of household electrical products based, I understand, in the United Kingdom.  The defendants are also members of a group of companies; in this case the German Pool Group, which carries on a business in Hong Kong which also includes the manufacture and sale of domestic electrical appliances.  The litigation dates back to May 2011, proceedings having been commenced by the plaintiffs seeking to restrain the defendant’s from infringing a patent, and copyright held by the 1^st plaintiff in a model of bladeless fan.

2.  Following an inter‑parties hearing on the 3 June 2011 an injunction order was issued by the court restraining the 2^nd and 3^rd defendants from the further manufacture, import or sale of certain models of bladeless fans.  The order did not extend to the 1^st defendant which gave a parallel undertaking to like effect.

3.  At the hearing on 13 October 2016 there were three summonses before the court.  Chronologically, the first of these was a summons filed by the plaintiffs on 13 June 2016 seeking a stay of these proceedings pending the determination of certain proceedings which are ongoing before the European Patents Office (“EPO”).  For their part the defendants issued a summons dated 30 August 2016 by which they sought the discharge of part of the Injunction Order which had been made on 3 June 2011.

4.  The defendants issued a further summons on 12 October 2016 by which they sought to amend their earlier summons so as to include reference to the undertaking in lieu of an injunction which had been given by the 1^st defendant.  The amendment canvassed by this summons was not opposed by the plaintiffs, and an order in terms of that summons was therefore made.

Background

5.  As noted above, the matters in dispute between these parties arise out of allegations of copyright and patent infringement by the defendants.  The plaintiffs’ complaint, put broadly, is that the defendants have marketed and/or sold bladeless fans incorporating component parts which are reproductions of the 1^st plaintiff's artistic works in respect of which the 1^st plaintiff owned copyright, and was the subject of a Hong Kong Patent (referred to as “the 413 Patent”).  The 2^nd plaintiff is the exclusive licensee for the manufacture and sale of products subject to the 413 Patent.

6.  Breach of copyright allegations are no longer in issue between the parties.  At an early stage of the proceedings the defendants admitted liability in regard to copyright infringement and, by a consent order dated 21 November 2012, judgement on liability was obtained by the plaintiffs against the defendants in respect of that part of the plaintiff's claims.  Disputes remain between the parties in regard to the patent issues however, and the plaintiffs’ damages claims arising out of the alleged breaches of the defendants remain to be determined, as do matters arising out of the defendant's counterclaims.

7.  Set out below is a chronology of some of the key events which have taken place in regard to these matters.

Patent application filed in Europe	26/8/2008
Patent granted in Europe	1/12/2010
Patent granted in HK	6/5/2011
Writ issued	17/5/2011
Injunction application	18/5/2011
Statement of Claim in HCA	31/5/2011
Defence and Counterclaim in HCA	12/7/2011
Opposition to European Patent	5/7/2011
P seeks judgment on admissions in HCA	16/11/2012
Judgment by consent in HCA	21/12/2012
Oral hearing in Opposition Division	29/2/2016
D. issues Notice of intention to proceed	15/3/2016
“Revocation” of European Patent by Opposition Division	16/3/2016
P. offered to suspend injunction on terms	5/4/2016
Case Management Summons (D)	3/6/2016
Stay summons	13/6/2016
P. appeal to Technical Board of Appeal	29/7/2016
Discharge Summons	30/8/2016

8.  The relevance of some of the above events calls for some elaboration.  The grant of the 413 Patent in Hong Kong was based upon the grant of a patent in Europe in December 2010, and it is the validity of that European patent which, in many senses, lies at the heart of the remaining issues in Hong Kong.  As appears in the chronology the European patent was applied for in 2008; was granted in December 2010; and the Hong Kong grant followed approximately five months later.  Almost immediately thereafter the plaintiffs moved against the defendants issuing a writ and seeking an injunction to prevent the sale or marketing of bladeless fans by the defendants.

9.  The plaintiffs were successful, obtaining the injunction against the 2^nd and 3^rd defendants with the 1^st defendant making an undertaking in lieu to like effect.  The Injunction Order restrained the defendants, until judgment or further order, from manufacturing or dealing with any bladeless fan that infringed the 413 Patent.

10.  The 413 Patent, as noted above, was granted based upon the existence of the European Patent, and shortly after the Injunction Order was issued a German affiliate company to the defendants commenced Opposition Proceedings before the EPO by which the validity of that European Patent was challenged.  A Brazilian company also challenged that patent in Opposition Proceedings.

11.  As, it appears, is commonly the case, the Opposition Proceedings were prolonged, and the written decision of the Opposition Division was published only on 16 March 2016.  The procedure before the Opposition Division is such however that a preliminary indication of the conclusions of the Opposition Division had been provided to the relevant parties in advance of the oral hearing which was held by the Opposition Division on 29 February 2016.

12.  The decision of the Opposition Division was adverse to the plaintiffs, and was succinctly expressed, as being that “European Patent No EP‑B‑2 191 142 is revoked.”.  The procedures of the EPO provide for an appeal mechanism from decisions of the Opposition Division to, in this case, the Technical Board of Appeal.  The plaintiffs have instigated such an appeal.  It is significant to record that bringing such an appeal has a suspensive effect in regard to the order revoking the European patent.  In other words, until determination of the appeal process, the patent is treated as remaining valid.

13.  Returning to the chronology, the defendants admitted copyright infringement and judgment on liability was entered, by consent, in November 2012, but other than this and the service of a statement of claim, and a defence and counterclaim, there was no substantive progress, or even attempted progress, in the Hong Kong proceedings after the injunction was issued until quite recently.  There were discussions between the parties regarding the possibility of formalising a stay of proceedings to abide the outcome of the proceedings before the Opposition Division, but no such agreement eventuated, despite repeated attempts to reach agreement with the defendants according to the plaintiffs.

14.  The Hong Kong proceedings were “revived” by the defendants on 15 March 2016 when a Notice of Intention to Proceed was issued.  This came hard on the heels of the decision by the Opposition Division to revoke the European patent.  A Case Management Summons was issued by the defendants on 3 June 2016 by which directions for the exchange of lists of documents and witness evidence were proposed, with a further Case Management Conference to be convened at a future date.

15.  The plaintiffs were not content for the Hong Kong proceedings to be resumed and took out the summons of 13 June 2016 (“the Stay summons”) seeking a stay of all further proceedings in this action until the “final determination of the patent opposition filed at the European Patent Office (EPO) by German Pool (Deutschland) GmbH against the first plaintiff's European Patent ... by way of final non‑appealable decision or withdrawal, or the expiry of the applicable period for appeal...”.  What that means in practical terms is discussed below.

16.  Very shortly before the date fixed for the Case Management Conference pursuant to the defendant’s Case Management Summons, the defendants filed their summons seeking the discharge of parts of the Injunction Orders (“the Discharge summons”).  In consequence of this the court directed that both the Stay summons and the Discharge summons be fixed to be heard together before a judge.  Provision was made for the exchange of affirmation evidence.  The Case Management Summons was adjourned sine die.

17.  It is apposite to record that some efforts were made by the parties to reach accommodation over part of the matters canvassed by the summonses.  In particular, the plaintiffs offered to agree to the discharge sought by the defendants, and to undertake to apply to the EPO Technical Board of Appeal to have the appeal heard with expedition, if a stay of the Hong Kong proceedings were to be ordered.

The Stay Summons

18.  The proceedings in Hong Kong have been left in abeyance by both parties since 2012.  Clearly this is unacceptable, but each party points the finger at the other in seeking to attribute responsibility for this situation. The plaintiff submits that it was for the defendant to pursue its counterclaim once the plaintiffs’ position was protected by the injunction.  The defendant submits that the plaintiffs bear the onus to proceed with the litigation, all the more so in circumstances in which interim injunctive relief had been obtained.  I accept that the plaintiffs cannot properly ‘sit back’, having commenced proceedings and obtained injunctive relief, but placing that onus on the plaintiffs does not imply that the defendants bore no responsibility towards the efficient conduct of the proceedings.  Both parties bore a responsibility to regularise the position, by proceeding with the action, or if so advised, by seeking a stay of the proceedings.

19.  In any event, the plaintiffs now seek an order staying the proceedings until the resolution of the EPO proceedings.  This application must be understood in context.  It is common ground that the EPO proceedings may take a further 7 or 8 years in addition to the 4½ years already taken.  This process would involve a decision by the Technical Appeal Board, with the possibility of a remission back to the Opposition Division, followed by, potentially, a further appeal.  It is not certain that this process will necessarily be required; that would depend upon the decision by the Technical Appeal Board, but nor does this time estimate include the possibility of an appeal to an Enlarged Board of Appeal.  What is clear from this however is that any stay is therefore one of a substantial minimum duration.

20.  The defendants oppose a stay of the action.  They wish to achieve commercial certainty by a speedy resolution of this matter, a wish which has emerged, I note, only after several years of inactivity.

Stays pending EPO proceedings

21.  There is no Hong Kong precedent for a stay application in circumstances such as those here.  The position has been considered in the UK however.  The leading case is the Court of Appeal decision in IPCom GmbH & Co KG v HTC Europe Co Ltd [2014] RPC 12 in which Floyd LJ held [at 68]:

“In light of the observations in Virgin and the arguments on this appeal I would recast the Glaxo guidance as follows:

1.  The discretion, which is very wide indeed, should be exercised to achieve the balance of justice between the parties having regard to all the relevant circumstances of the particular case.

2.  The discretion is of the Patents Court, not of the Court of Appeal. The Court of Appeal would not be justified in interfering with a first instance decision that accords with legal principle and has been reach by taken into account all the relevant, and only the relevant, circumstances.

3. Although neither the EPC nor the 1977 Act contains express provisions relating to automatic or discretionary stay of proceedings in national courts, they provide the context and condition in the exercise of the discretion.

4.  It should thus be remembered that the possibility of concurrent proceedings contesting the validity of a patent granted by the EPO is inherent in the system establish by the EPC. It should also be remembered that national courts exercise exclusive jurisdiction on infringement issues.

5.  If there are no other factors, a stay of the national proceedings is the default option. There is no purpose in pursuing two sets of proceedings simply because the Convention allows for it.

6.  It is for the party resisting the grant of the stay to show why it should not be granted. Ultimately it is a question of where the balance of justice lies.

7.  One important factor affecting the exercise of the discretion is the extent to which refusal of a stay will irrevocably deprive a party of any part of the benefit which the concurrent jurisdiction of the EPO and the national court is intended to confer. Thus, if allowing the national court to proceed might allow the patentee to obtain monetary compensation which is not repayable if the patent is subsequently revoked, this would be a weighty factor in favour of the grant of a stay. It may, however, be possible to mitigate the effect of this factor by the offer of suitable undertakings to repay.

8.  The Patents Court judge is entitled to refuse a stay of the national proceedings where the evidence is that some commercial certainty would be achieved at a considerably earlier date in the case of the UK proceedings than in the EPO. It is true that it will not be possible to attain certainty everywhere until the EPO proceedings are finally resolved, but some certainty, sooner rather than later, and somewhere, such as in the UK, rather than nowhere, is, in general, preferable to continuing uncertainty everywhere.

9.  It is permissible to take account of the fact that resolution of the national proceedings, whilst not finally resolving everything may, by deciding some important issues, promote settlement.

10.  An important factor affecting the discretion will be the length of time that it will take for the respective proceedings in the national court and in the EPO to reach a conclusion. This is not an independent factor, but needs to be considered in conjunction with the prejudice which any party will suffer from the delay, and lack of certainty, and what the national proceedings can achieve in terms of certainty.

11.  The public interest in dispelling the uncertainty surrounding the validity of monopoly rights conferred by the grant of a patent is also a factor to be considered.

12.  In weighing the balance it is material to take into account the risk of wasted costs, but this factor will normally be outweighed by commercial factors concerned with early resolution.

13.  The hearing of an application for a stay is not to become a mini‑trial of the various factors affecting its grant or refusal. The parties’ assertions need to be examined critically, but at a relatively high level of generality.”

22.  The defendants submit that the courts in England will seek to find a course of action that will promote “commercial certainty” for the parties, and the defendants urge me to follow suit.  I am reminded of the judgment of Jacob JA in Machinery Developments Ltd & Anor v St Merryn Meat Limited & Anor (at para 15):

“I have to say that waiting for an EPO opposition procedure to end seems often to be close to waiting for Godot. Cases where most (or all) of the life of a patent are taken up are not infrequent. Sometimes this may not matter, where for instance there is no real commercial product or commercial inhibition caused by the patent. Perhaps a point of principle is at issue, or the invention has no real commercial value. But there are plenty of cases where this sort of delay really matters. It must never be forgotten that uncertainty normally favours the patentee: others do not know what they can safely market, or work on by way of development and fresh invention, if they stand in the shadow of a possible patent. So whilst it is of course desirable that one should avoid the possibility of inconsistent judgments or the expense of parallel litigation, as Aldous LJ pointed out in Beloit Technologies v Paper Machinery [1997] RPC 489 at 503 and Kimberly‑Clerk v Proctor & Gamble [2000] FSR 235 at 245, unless resolution in the EPO is reasonably imminent it would often be unjust to stay proceedings here while the EPO procedure runs its leisurely course.”

23.  Somewhat similarly, in Eli Lilly & Company v Janssen Sciences Ireland UC [2016] EWHC 313 (Pat), the plaintiff sought to revoke a patent, and the court was presented with a stay application by the patentee pending determination of validity of the patent by the EPO.  The EPO proceedings were well advanced by the time that application for a stay was made, since the Opposition Division was due to hear the matter later the same year.  A stay was nevertheless refused even though the patentee also undertook to support any application made seeking to accelerate any appeal from the decision of the Opposition Division, and undertook not to seek an injunction against the plaintiff or to seek damages other than on a reasonable royalty basis.

24.  The defendants submit, and it was not challenged, that the effect of a stay would be to allow the plaintiffs to exploit the patent unchallenged in Hong Kong until almost the end of the validity of the patent.

The Factors

25.  It is common ground that whether or not a stay is to be ordered is a matter of discretion involving a balance of both convenience and fairness as between the parties, involving the court in seeking to ensure that its process is used properly, fairly, and efficiently.  Largely based on the guidance given in IPCom, a number of matters were raised by the parties as being relevant considerations during the course of submissions one of which was that Hong Kong, unlike England, does not have a specialist patent court or judge. This, it was submitted, is relevant in 2 respects; one being that some preference should therefore be given for having the patent dispute decided first by the EPO.  Secondly, it was also pointed out in submissions that the approach in England, notwithstanding the existence of a specialist court in that jurisdiction, was to defer to the EPO, and for a stay to be granted pending a decision by the EPO.

26.  It was submitted that the decision of the EPO was, at the least highly important if not decisive as to the validity of the 413 Patent, and it was submitted that it was unlikely that the Hong Kong court would disagree with a decision of the EPO if, of course, the EPO decision was available.

27.  Moreover, it was submitted, the defendants could have no complaint about the time to be taken by the EPO proceedings since they had themselves initiated those proceedings.

28.  As regards costs of the process, it was said to be inevitable that the EPO proceedings will continue, in part because there is another independent party (the Brazilian party) which has challenged the patent, and in part because the decision of the EPO would be necessary to determine validity of the patent in Europe.  The costs associated with the EPO proceedings are therefore inevitable, and there will be no cost saving in a determination by the Hong Kong courts in advance of the EPO decision.  On the other hand, a substantial element of the Hong Kong costs could be avoided if the proceedings here were stayed until after the EPO decision has been rendered.

29.  In addition, proceeding here in advance of the EPO decision gives rise to a greater risk of inconsistent findings as between the Hong Kong courts and the EPO.  Staying the Hong Kong proceedings until after the EPO decision has been given minimises or, most likely obviates, any such risk.

30.  The plaintiffs contended that the defendants bore the burden of establishing through evidence that there would be some degree of enhanced commercial certainty resulting from the Hong Kong action proceeding in advance of the EPO proceedings, but had failed to do so.  To the extent that it is to be inferred that there would be greater commercial certainty resulting from the Hong Kong decision, according to the plaintiffs it was to be kept in mind that such commercial certainty could have been obtained by the defendants by proceeding sooner in Hong Kong.  However, the defendants had chosen not to proceed until the Opposition Division decision emerged in their favour.  The defendants contended commercial certainty cannot be a not a matter of direct evidence, but rather is a matter of inference, and a decision by the court in Hong Kong will, inevitably, promote commercial certainty in Hong Kong even if not more widely. 

31.  The defendants pointed to the fact that Hong Kong proceedings, even if resulting in an appeal would almost certainly lead to a decision as to the validity of this patent in Hong Kong considerably more quickly than would waiting for a decision by the Technical Board of Appeal, even if that process could be expedited.  Granting a stay of the Hong Kong proceedings would preclude the defendants from challenging a patent in Hong Kong which the Opposition Division has found to be, at the lowest, dubious.

32.  Having considered the above, the factors which weigh most heavily with me in seeking to achieve a balance of justice between the parties, are those related to time.  It is clear that the EPO proceedings will be lengthy, and it was common ground between the parties that even an application to have the matter dealt with expeditiously would not significantly shorten the time required.  These proceedings were instigated in Hong Kong 5 years ago and could conceivably have been on foot for 12 or 13 years by the time a final decision is available from the EPO.  By that time, as was pointed out on behalf of the defendants, the validity period of the 413 Patent will be drawing to a close, and the plaintiffs will have had the benefit of the patent without having had to justify its validity, other than to the 413 Patent of the proceedings before the Opposition Division which have already taken place, and which gave a result adverse to the plaintiffs.

33.  In the ordinary course of litigation, a strong basis would be required to justify staying court proceedings for up to 8 years, particularly when the application is made some considerable time after the proceedings were initiated.  The existence of the EPO proceedings, the risk of inconsistent findings as between the Hong Kong courts and the EPO, and the starting point taken by the courts in England and Wales are all factors which lend some support to the plaintiff’s application for a stay, but not, in my judgement, nearly sufficient to outweigh the potential for prejudice to the defendants, and the self‑evident commercial uncertainty that the present position generates.

34.  For those reasons, I am not persuaded that a stay should be ordered, and the stay summons is therefore dismissed.

The Discharge Application

35.  The defendants applied to discharge para 1 of the interlocutory injunction order which was granted in May 2011 and which prohibited the defendants from infringing the Hong Kong 413 Patent.  The summons also sought an order for a speedy trial of the action, with the question of validity of the 413 Patent to be tried as a preliminary issue. 

36.  The basis upon which the discharge (and release from undertaking) was sought was that:

(a)  the European patent “has been found to be invalid at 1^st instance in the EPO”;

(b)  the plaintiffs have proposed amendments to the European patent in order to save that patent, and are continuing to seek to amend the patent on appeal;

(c)  the present proceedings have not been prosecuted by the plaintiffs in the five‑year period since the injunction order was made;

(d)  the plaintiffs are not at risk of irreparable harm; and

(e)  the defendants are prejudiced by the continued existence of the injunction and this action.

37.  The plaintiffs point out that the injunction order was made following an inter partes hearing at which both parties were represented by leading counsel.  The application now made cannot be treated as a rehearing of that application and it is necessary for the defendants to demonstrate that there has been a “significant change” of circumstances (or that new facts have emerged) since the injunction order was made.  There has been, self evidently, a significant lapse of time since the order was made, and the delay on the part of the defendants in making the application is a factor in considering that application.

38.  The plaintiffs submit that the defendants are wholly incorrect when they submit that the European patents has been invalidated by the decision of the Opposition Division.  That European patent remains effective pending the determination by the Technical Appeal Board.  Perhaps more importantly, the Hong Kong patent remains valid, and under section 44 of the Patents Ordinance, will remain so until an order revoking the European patent has been filed, and advertised by the Registrar.

39.  The injunction order was made by Deputy Judge Coleman (as he then was) after having considered submissions regarding the validity of the 413 Patent, and it is submitted that the circumstances now existing or no different to those when the matter was considered by the Deputy Judge.

40.  The reference by the defendants to the amendments proposed to the European patent are also misconceived, according to the plaintiffs, because, firstly, these amendments are not actively pursued, representing a fallback position to the plaintiff’s primary position that the European patent should be maintained as granted.  It is submitted that the amendments arise by way of Auxiliary Requests in the EPO proceedings and, as such, are to be considered only if the patent is not to be maintained as granted.  I was informed by the defendants that the Auxiliary Requests were considered and denied by the Opposition Division.  Secondly there is no application to amend the Hong Kong patent which is the subject matter of the protection conferred by the injunction order.

41.  According to the plaintiffs, it is wrong for the defendants to attribute responsibility for the time which has elapsed since the injunction was made to the plaintiffs, in circumstances in which both parties have acquiesced in what amounts to a de facto stay since then.  Not only have the defendants themselves taken no earlier steps to seek the discharge of the injunction, the application to discharge was not made until approximately 6 months after the Opposition Division decision was handed down.

42.  The plaintiffs do not accept that there is no longer any harm to be suffered by them in the event that competing products are offered by the defendants, and the points made by Mr Terence Chu in his 1^st and 2^nd affirmations in support of the injunction application are said to remain valid.  So far as the prejudice alleged to be suffered by the defendants is concerned, these points have already been considered by the Deputy Judge when making his original order.  In any event the defendants are protected by the cross undertaking in damages which was given as part of the injunction order.

Factors

43.  I take as a threshold question whether or not there could be said to have been a change of circumstances requiring a reconsideration of the injunction order.  I have little doubt in my mind that there has been such a change of circumstances. The defendants point, unsurprisingly, to the decision of the Opposition Division to the effect that the European patent should the invalidated. Although, for present purposes the appropriate course is to proceed on the basis that the European patent remains valid pending the conclusion of the process in the EPO, and indeed the Hong Kong patent also remains valid, nevertheless the decision of the Opposition Division clearly impacts on the ‘strength’ of the plaintiffs’ position.  The only “review” of the grant of the European Patent on which the Hong Kong patent also is based, a review undertaken by a specialist tribunal, has concluded that the patent should be revoked.  Implementation of that decision has been automatically suspended, but the fact that the Opposition Division found against the European patent remains.

44.  Circumstances have also changed as regards the circumstances of the plaintiffs.  Before the Deputy Judge, it appears that there was some considerable emphasis placed on the fact that the plaintiffs’ fans were (then) new to the market in Hong Kong, and it was said that the sale of infringing products was likely to damage the development of the brand and the market at that critical stage.  That is no longer the position since the plaintiffs have been able to exploit the patent and establish their reputation over a period of years since then.

45.  In my judgement therefore these changes of circumstance are significant, and the continued necessity for the Injunction Order should properly be reconsidered.  Doing so, it appears to me, the balance of convenience now weighs quite heavily against the maintenance of the injunction order.  There being no present “threat” of infringement of the 413 Patent by the defendants, and there being no evidence of damage likely to be suffered by the plaintiffs that cannot be remedied in damages, nor any doubt as to the defendants’ ability to meet any such damages claim as might arise, there is no longer any necessity or justification for the injunction order.

46.  In the premises, I will make an order in terms of paras 1 and 1A (added by amendment) of the Discharge Summons.

Speedy Trial?

47.  The question of a speedy trial, and the application for the determination of a preliminary issue were barely touched on at the oral hearing, and I understand the latter application not to be pursued.  So far as the speedy trial is concerned, no justification for such an order has been advanced, other than that the litigation has been drawn out, and no proposals for the concomitant directions that would be required have been provided.  I make no order on either the speedy trial or the preliminary issue applications.

Costs

48.  The parties requested an order nisi as to costs.  Given the circumstances above, the order that I make is, on the requested order nisi basis, that the costs of both the Stay summons and the Discharge summons are to be to the defendants with (although unnecessary, but for the avoidance of doubt) a certificate for two counsel.  Costs of the defendants’ summons of 12 October 2016 are to be to the plaintiffs.