Lufthansa Technik AG v Panasonic Avionics Corporation and Others
| Jurisdiction | England & Wales |
| Judge | Lord Justice Birss,Lord Justice Newey,Lady Justice King |
| Judgment Date | 01 November 2023 |
| Neutral Citation | [2023] EWCA Civ 1273 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: CA-2023-000936 |
[2023] EWCA Civ 1273
Lady Justice King
Lord Justice Newey
and
Lord Justice Birss
Case No: CA-2023-000936
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INTELLECTUAL PROPERTY LIST (ChD)
PATENTS COURT
Recorder Douglas Campbell KC (sitting as a Deputy High Court Judge)
[2023] EWHC 1043 (Pat)
Royal Courts of Justice
Strand, London, WC2A 2LL
Iain Purvis KC, Miles Copeland and Alice Hart (instructed by Hogan Lovells) for the Appellant
Hugo Cuddigan KC and Mitchell Beebe (instructed by Jones Day) for the Respondent
Hearing date: 12 October 2023
Approved Judgment
This judgment was handed down remotely at 10.30am on [date] by circulation to the parties or their representatives by e-mail and by release to the National Archives.
The question in this appeal is whether or not an application to correct information provided by a defendant in an intellectual property claim pursuant to an Island Records order, made to allow the claimant to elect between two inconsistent financial remedies, is an application for relief from sanctions to which CPR r3.9 applies.
Lufthansa is the claimant in this patent action. There are various groups of defendants. The relevant group can be referred to as Panasonic. Lufthansa has a patent for an invention relating to electric plug sockets used on aeroplanes to supply power to passengers. Last year (January 2022) this court dismissed an appeal from the judgment of Morgan J in which he found the patent valid and infringed by the defendants' products. Paragraph 10 of his order dated 22 July 2020 at the conclusion of the trial required Panasonic to provide information about their sales revenue for the relevant infringing goods, along with information about the costs. The information was to be provided by a director. The point of this order was to allow the patentee Lufthansa to elect between pursuing an enquiry as to damages or an account of profits. Such an order was first made in Island Records v Tring [1996] 1 WLR 1256. The successful claimant is entitled to choose which remedy to pursue and the information provided allows them to make a rational choice.
It will be necessary to come back to the nature and purpose of Island Records orders below, but a brief explanation of the choice they are designed to facilitate is worth mentioning now. If an IP rights holder's business is in licensing their rights then the damages would be measured by the loss of royalty on the defendant's infringing goods, which, if the infringements were highly profitable, may be a lower sum than the amount of profit the infringer earned from the infringement. The rational choice might then be to choose an account of profits. On the other hand if the infringer's business was unprofitable, perhaps trying to break into a new market, and the rights holder's business was a profitable one making direct sales to customers, which were lost due to the infringement, then a damages enquiry might be more sensible. Also the nature of the disclosure and evidence burdens, and on whom they fall, differs between these two kinds of proceedings and that may be another factor to bear in mind.
The order required the information to be provided by 30 October 2020, in a witness statement supported by a statement of truth. Panasonic duly served a witness statement of Steven Varner which, on the face of it, contained the required information. Mr Varner was not a director (and did not say that he was). No point was taken on that at the time. The precise figures given by Mr Varner are confidential (at this stage) and the details are not relevant. Broadly the revenue earned in the period was about $165 million. The total of the direct and indirect costs left a very substantial figure for the profit. Perhaps not surprisingly given that Lufthansa's relevant business is licensing, Lufthansa elected to pursue an account of profits.
The election actually took place much later, on 2 September 2022. At the same time Lufthansa served Points of Claim in the account proceedings. One reason why this happened so long after Morgan J's order was the appeal to this court of Morgan J's judgment on liability. It made sense not to spend too much time and effort on financial remedies until the appeal was resolved. One thing which had happened in the meantime at the High Court level was a hearing in February 2021 to resolve terms of confidentiality relating to the information in Mr Varner's witness statement.
On 22 September 2022, three weeks after the election and the Points of Claim were served, Panasonic's solicitors told Lufthansa's solicitors that there were going to be “updates” to the information in Mr Varner's witness statement. On 2 December 2022 Panasonic served a witness statement of Mr Ryogen Takahashi. Mr Takahashi was a director of Panasonic Avionics Corp. Many of the figures in Mr Takahashi's statement are identical to those in Mr Varner's. The gross revenue and direct costs are the same. The indirect costs figures differ, but the major change is the introduction of a sales credit which reduces the gross revenue down to a significantly lower net revenue figure. The overall effect of all this, says Panasonic, is to reduce the profits by about $30 million.
A week later, on 9 December 2022, Lufthansa's solicitors wrote to Panasonic's solicitors raising concerns about what had happened. Lufthansa made the point that the new evidence appeared to have been triggered by the election and Points of Claim. Lufthansa contended that now it had made its election it was not open to Panasonic to retrospectively change the basis on which that election was made and not open to it to advance a materially different factual position to that set out in Mr Varner's evidence. Lufthansa also noted that Mr Varner was not a director, unlike Mr Takahashi.
On 11 January 2023 Panasonic's solicitors wrote offering Lufthansa an opportunity to revisit the election. Lufthansa declined to do so.
Lufthansa made an application, and in reaction to it Panasonic made a cross-application. The matter came before Mr Recorder Douglas Campbell KC sitting as a Deputy Judge of the High Court on 27 April 2023. In paragraph 1 of its application notice Lufthansa were seeking an order that Panasonic may not rely on the additional costs and deductions referred to in Mr Takahashi's statement which had not been addressed in Mr Varner's statement. By contrast Panasonic were seeking an extension of the deadline in paragraph 10 of the Order of Morgan J in July 2020 up to the date of service of Mr Takahashi's statement in December 2022.
The evidence for the hearing addressed what had happened. Panasonic explained that in fact an internal review in January 2021 by a Mr Duckworth indicated that items must have been missing from Mr Varner's statement. That was only two months after Mr Varner's statement was served. Nevertheless at the confidentiality hearing in February 2021, witness statements from Panasonic's solicitor Mr Bennett, and from Mr Mark Jennings of Panasonic, referred to Mr Varner's evidence but made no mention of any problem with its content. As Mr Campbell KC later noted in his judgment, that evidence would have looked very different if Mr Duckworth's comments had been mentioned. Panasonic also explained that by the end of June 2021 an employee, Mr Nguyen, had come to the preliminary view that the costs figures in Mr Varner's statement were incorrect and a more detailed review was needed. Then in May 2022 Mr Nguyen was prompted to pick up the review again. At no time were Lufthansa told anything about this.
Crucially, before Mr Campbell KC there was common ground between both Lufthansa and Panasonic that the nature of what was before the court was a matter of relief from sanctions. Paragraphs 23 and 24 of the judgment ( [2023] EWHC 1043 (Pat)) accurately set out the position as it was before the court at the hearing:
23. Panasonic's application notice does not state in terms that Panasonic is seeking relief from sanctions. However, it was common ground before me that that was the essential nature of Panasonic's application and that the three-stage test set out in the well-known case of Denton v TH White Limited [2014] EWCA Civ 906, [2014] 1 WLR 3296 was the test which I should apply.
24. It was not suggested there was any material difference in the end result between paragraph 1 of Lufthansa's application notice and Panasonic's application for relief from sanctions in this respect. Hence counsel for Lufthansa addressed me on why relief from sanctions should not be granted, his application being first in time, and counsel for Panasonic then addressed me on why such relief should be granted.
The judge therefore considered the matter on that basis, i.e. as an application for relief from sanctions. CPR r3.9 was referred to along with well known cases on relief from sanctions. Clearway v Miles Smith [2016] EWCA Civ 1258 was cited for the proposition that the fact a trial date would not be imperilled is not a trump card when a breach is found to be serious or significant. The judge held on the facts before him (paragraphs 38–39) that there was no material risk of the trial date being at risk.
In the judgment, after dealing with the law briefly (since it was common ground) the judge analysed the facts in detail in paragraphs 46–73. There is no suggestion he made any error there. He identified essentially two breaches of Morgan J's order. The first was that the statement was not given by a director. The second was that it missed out or misstated important costs and deductions. Notably in this section the judge also observed that the evidence provided by...
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Yesss (A) Electrical Ltd v Martin Warren
...judgment and Nicola Davies LJ and I agreed. Shortly before the hearing the judgment in Lufthansa Technik v Panasonic Avionics Corp [2023] EWCA Civ 1273 was handed down, which considered the ambit of relief from sanctions. I gave the leading judgment and King and Newey LJJ agreed. This was ......