China IP: Could you please summarize how IPR is protected in the UK, including the cost and timeline of litigation?

Justice Birss: In the UK today, there are two tracks for IP enforcement in the civil courts: the High Court and the Patents County Court (soon to be renamed the Intellectual Property Enterprise Court). The High Court deals with all high value and highly significant cases. The Chancery Division is responsible for IP cases, and several specialist Justices are available. The Patents Court in the Chancery Division is a specialist court that deals with patent and registered design cases. For example, in a case concerning a valuable pharmaceutical patent, the legal cost of the case maybe one or two million pounds; but that is not unreasonable because the total value of the case could be worth hundreds of millions of pounds or even more.

We also have the Patents County Court (PCC). It was established in 1990 in order to handle lower value patent cases, with the intention of helping SMEs in particular, by reducing the costs involved with IP litigation at the High Court. It can now hear cases for all types of intellectual property. The cost of IP litigation within the UK legal system was deemed to be prohibitively high, particularly for SMEs. To help reduce these costs the PCC has undergone several reforms since 2010. The court has a fixed scale of recoverable costs capped at ￡50,000, to provide more certainty for businesses entering litigation and to make it easier to identify which cases should be heard in the PCC. A time cap of 1-2 days on cases is often imposed to reduce the costs and complexity of cases. The time limit also requires proactive case management to ensure that only relevant evidence is heard during a case. Litigants only issue warrants for evidence if the value justifies the cost of producing it since there is no standard disclosure.

A Small Claims Track (SCT), for uncomplicated and low value claims of less than ￡10,000 has also been introduced. This practice is quite new and has worked quite well so far. Hearings in the SCT are informal and can be held without the need for legal representation. This route is open to copyright, trade mark and unregistered design cases.

China IP: You mentioned that the cost of litigation is high. It seems that the UK does not encourage litigation, is that true?

Justice Birss: The English legal culture is to try to avoid going to court. Because it is expensive, it is not only a burden for the parties involved but also a burden for the country. The time required to have a judgment delivered by the UK courts is rather long by international standards. This is necessary in order to give courts time to provide detailed reasons explaining why they reached a specific conclusion. This helps people in other cases understand the court’s reasoning. Consequently, the court’s results will be more predictable when similar issues are raised in future cases. That is a fundamental part of the UK’s legal culture. The judicial system in England and Wales is based on the principles of common law. In a common law system, judicial precedents are binding where there has been no major codification of the law. The law is developed by judges in court, who apply statute, precedent and common sense to the facts presented to them. When delivering judgments, judges explain the reasons behind their decision. These reasons form the legal principle behind a binding precedent. Once a point of law has been decided in one case, it must be applied in all future cases containing the same material facts.

Virtually all English civil litigation damages are compensatory, not punitive. In the UK, damages for the infringement of IP rights are calculated based on a number of factors. The court determines the number of products that the infringer has sold and the losses and costs to the right holder are taken into consideration.

The loss in England is regarded as the loss of profit that the right holder would have made if it made these sales instead of the infringer. If the infringer can show that the right holder has not lost any sales, for whatever reason, the damages are not necessarily zero.

If this happens then the infringer may have to pay a reasonable royalty fee. This is because the right holder potentially lost a royalty fee that he theoretically could have received. Court costs within England and Wales are normally paid by the losing side.

China IP: How many PCCs or equivalent courts are there in the UK and how many cases do they deal with annually?

Justice Birss: I have just met with judges in the Haidian People’s District Court. The number of cases they deal with is incredible. It is fantastic that the court can deal with so many cases. The number of cases that the PCC deals with is much smaller. The PCC is a court staffed by a single judge. The court received around 200 cases last year, which is a big increase over the period before the recent reforms.

But people need to be careful when comparing numbers. This is because in the English legal tradition fewer cases make it to court. The British try to make the law predictable so the parties can settle a case before it reaches court. 200 cases for a single IP judge is a big number, but there are also part-time deputy judges when the court gets busy.

More smaller cases are now tried than there used to be. The problem in the past was that the court system lacked an appropriate venue for smaller IP cases. Consequently, many of these cases were never heard by a judge. In England we are trying to improve overall access to justice for SMEs through the use of PCC.

China IP: You have indicated that the preliminary injunction system is one of the key topics that you would like to discuss with Chinese judges. Could you please elaborate on the UK’s practice on preliminary injunctions?

Justice Birss: Yes, I will have a workshop with the judges from China’s Supreme People’s Court on preliminary injunctions. I am very much looking forward to it. I want to try to explain how they are handled in England and see how judges in the Supreme People’s Court manage preliminary injunctions in China.

In 1975, the House of Lords, the former equivalent to the Supreme Court in England and Wales, gave the leading ruling on preliminary injunctions in the UK. All judges in England and Wales must now consider the guidelines set out in the American Cyanamid case when deciding an application for a preliminary injunction. A claimant who wishes to apply for a preliminary injunction must first start ‘normal’ legal proceedings against the defendant. Once a claim has been issued then the claimant may file an application for a preliminary injunction. There will be an oral hearing at which the judge will decide whether the test set out in American Cyanamid has been satisfied.

There are four limbs to the American Cyanamid test. First, both parties have to demonstrate that they have an arguable case. Second, the claimant must demonstrate to the court that any damages awarded to the claimant after a full trial would not be an adequate remedy. Third, the claimant must prove that more injustice will be caused to it if the judge does not grant the injunction than would be done to the defendant if the judge wrongly grants the injunction. Fourth, the claimant must agree to reimburse the defendant if a judge at a full trial decides that the preliminary injunction was wrongly granted.

China IP: How do both parties demonstrate an arguable case?

Justice Birss: Having an arguable case i s the easiest hurdle to overcome. The claimant must simply prove that there is an arguable case involving the infringement of valid IP rights. The claimant does not need to prove that the right is valid and has been infringed, simply that there is an arguable case. The reasoning behind this is that the assessment of the validity and infringement of an IP right, especially a patent, is a difficult matter requiring evidence from technical experts and a much longer and more detailed consideration than is possible at a short hearing such as for an application for a preliminary injunction. Therefore the judge is not required to consider the claimant’s case in great detail, merely confirm that the claimant has some prospect of success if the matter progresses to a full trial. If the judge decides that the claimant’s intellectual property right is obviously invalid or obviously not infringed then the judge will dismiss the application for a preliminary injunction. The defendant may be permitted to apply to the judge to dismiss the claimant’s entire case.

In turn, the defendant must show to the court that it has an arguable case that the intellectual property right is invalid or not infringed. If the defendant cannot show that it has an arguable case on either of those points then it must be that the intellectual property right is obviously valid and obviously infringed, and therefore the defendant has no prospect of success at a full trial. In this circumstance, the claimant may apply for a final judgment and, again, there is no need to proceed to a full trial and therefore no need for a preliminary injunction.

China IP: Is there a possibility that the damage to one enterprise will be so great that it cannot adequately be compensated?

Justice Birss: When an IP right owner becomes aware o f an infringement, they will generally start legal proceedings. The case will proceed to a full trial around 18 months later, assuming the parties do not settle. If the claimant wins the trial then it will usually be granted a final injunction and damages. In most cases, those remedies will be sufficient for a claimant. However, sometimes the damage caused to the claimant during this 18 month period can be so great that it cannot adequately be compensated by an award of money. There might be several reasons for this. Examples include: the damage to the claimant’s business is so great or complex that it cannot properly be calculated; the defendant does not have sufficient funds to pay the damages award; or the damage to the claimant is of an intangible nature, i.e., damage to reputation which money cannot compensate for.

Generally, in cases involving infringement of a pharmaceutical patent, the patentee will claim that the damages are not adequate because the damage is too excessive or difficult to calculate. Pharmaceutical products are generally sold by the patentee at a high profit margin in order to generate sufficient revenue to pay for further research and development. A generic competitor is able to sell a pharmaceutical product at a far lower price. If a generic pharmaceutical product is allowed onto the market then the patentee must lower its price to compete with the generic and as a result the patentee loses market share and suffers from a reduced profit margin. Often a second, third or more generic manufacturers will also then be emboldened to start selling products and the price will spiral down. The patentee would argue that this damage to its business is so great that it cannot adequately be compensated by damages. Furthermore, the defendant might not have sufficient assets to pay a damages award even if the loss to the patentee could be calculated.

If the judge agrees that damages awarded after a full trial would not be an adequate remedy then the analysis will proceed to consider the next limb. The judge will assess all factors put forward by each party. Usually, the brand owner will point to the fact that damages granted after a full trial will be inadequate and claim that his business will be permanently damaged if the injunction is not granted.

Usually the defendant will argue that a preliminary injunction will destroy its business and that even if the injunction were to be lifted after a full trial, then the damage will be so great that his business will not recover. All parties will submit evidence to support their positions and the judge will decide which side presents a more credible case and assess the balance of interests.

The Court will also take into account the parties’ behaviour. For example, if the defendant was aware of the IP rights and aware that it would infringe the use rights but launched its products without obtaining permission from the right holder then the judge is likely to be less sympathetic. If the IP rights owner knew of the infringement for some time before it took action then the judge is less likely to believe that the damage to his business is as great as the claimant argues. The claimant must act promptly and bring its action as soon as it discovers the infringement, or threat of infringement.

China IP: If the preliminary injunction is wrongly granted, how do claimants compensate the damage?

Justice Birss: If the preliminary injunction is wrongly granted then there will, of course, have been damage to the defendant’s business in the period between the grant of the preliminary injunction and the lifting of that preliminary injunction at a full trial. The claimant is required to compensate the defendant for that damage.

In many jurisdictions, the claimant is required to pay a bond to the court at the time when the preliminary injunction is granted to cover that potential damage. However, in England the claimant gives a promise known as a ‘cross undertaking’ to the court. The defendant may allege that the claimant has insufficient funds to cover the damage caused by the preliminary injunction. The claimant is permitted to offer a bond to the court and if accepted the claimant may pay an amount equal to the anticipated damage into the court’s account. However, this is generally not required.

Damages caused to the defendant might include wasted advertising costs, wasted product, lost sales, and lost opportunity to gain a competitive advantage over rivals who will have had time to develop products and join the market when the injunction is lifted (this is particularly acute in the pharmaceutical industry, in which the first generic on the market makes significant profit before others join).

The defendant will estimate potential damages and then try to settle on an amount with the claimant. Occasionally there will be a further court hearing at which a judge will decide on the damages payable, but generally parties will try to avoid that expense by settling.

China IP: How effective is the enforcement of the preliminary injunction in the UK?

Justice Birss: I think the English system gives strong protection. This system is designed to properly compensate right holders for damages and infringements. We have a system of strong injunctions which are enforceable using contempt of court, so injunctions in England are generally obeyed. If someone breaches an injunction, it is considered contempt of court and significant consequences can follow. These include fines, the assets of the company can be seized or detained, and ultimately the person could be sentenced to prison. We have a very strong enforcement regime. We have a firm legal culture that supports elimination of invalid patents. However, if a patent is valid, it should be protected properly. Patents cases are only heard by specialized judges who have experience dealing with patents.

China IP: With the development of China’s economy, more Chinese enterprises are expanding their business in the UK. What do you recommend to them regarding IP protection?

Justice Birss: Seek advice from local professionals. IP is important but complicated, and systems are not the same across the world. Although some aspects of our systems are similar, they are not identical. Any Chinese company that is going to Europe, and specifically the UK, should take IP seriously. I am very happy to see cases related to Chinese parties settled in the PCC. This shows that Chinese companies are willing and able to use the PCC and the UK IP system to protect their own rights.

In addition, there is one more thing I would like to share with you which I think is quite an interesting illustration of the way in which IP in China is becoming so important to Europe and UK. I oversaw a patent case around 6 month ago and the judgment was that the patent was invalid. The parties involved were European parties, but the prior art which invalidated the patent was based on Chinese prior art. As a practitioner in IP for almost 20 years in the UK, I have never seen Chinese prior art before. This shows the fact that IP is being taken with greater seriousness in China and IP elements such as prior art are being increasingly used around the world.