Ilya Kazi, partner at Mathys & Squire, looks at how small businesses such as tech startups can manage costs associated with patent litigation. 

The past three decades have seen technology become increasingly interdependent, with innovation relying primarily on proprietary knowledge, which in turn have led to a business’ IP portfolio becoming more valuable. So why do so many businesses let their IP protection fall behind?

Some businesses see the real value in acquiring IP assets, including patents, whilst others let their position fall to the wayside. Many small businesses can feel overwhelmed with the threat of litigation when faced with an infringement claim.

A case study

Take the recent case of British Gas Vs Metertech and VanClare, which highlights the importance of getting to know your rights and fighting to the end if needs be – despite the potential costs – as an example.

In a nutshell, British Gas was able to defend a £30m infringement claim filed by MeterTech and VanClare relating to past, current and proposed smart meter systems.

The US entity VanClare had bought the original patent that was being disputed over, along with a number of others for a mere £160,000 from administrators after the former owner, Cheshire-based Secure Electrans Limited, filed for bankruptcy in 2014.

VanClare subsequently licensed the patent exclusively to MeterTech who claimed that the infringement was significant as it “potentially affects, among other things, a £600m contract for the installation of up to 16,000,000 smart meters throughout the UK”.

A new breed

There is no denying that litigation can be very costly which is why many businesses prefer to settle outside the courtroom.

This weary attitude has led to the arrival of a new breed of entity snapping up patents around the world as they become available. This has been clearly demonstrated by VanClare in this case.

The global economic crisis has created a market place for this activity; with increasing numbers of portfolios becoming available to the opportunist as businesses find themselves in dire straits.

The case centred on whether or not the patent was indeed valid and if so were British Gas infringing the disputed patent.

There were a number of interesting facts with this case, with one that particularly stands out being that the value of the case related primarily on what would in fact have been future infringements. British Gas successfully argued that the patent was in fact invalid on grounds of ‘obviousness’.

The claimants tried to argue that the patent should stand as inventive, along the way refusing to admit that certain things were known or obvious from the common general knowledge at the relevant date when the patent was filed (May 2000):

1. Using a database to relate meter numbers to contact numbers
2. Using wireless communication in the home
3. Using a digital cellular modem to communicate data
4. Using the meter’s serial number to identify a meter to be credited

By trial a lot of these fell away and in the end the court found that the patent was obvious. The judge described some of the Claimant’s contentions as “unrealistic” and the judgement contained 10 references to “common sense”.

Associated costs

A second interesting point to take from the case is that of the costs to British Gas and the claimants. In order to simplify the issue and reduce costs as much as possible, British Gas initially turned to the Intellectual Property Enterprise Court (IPEC – a forum designed to deal expeditiously with smaller actions) to revoke the patent as invalid without having to complicate matters unnecessarily by looking at a number of different systems including the complex future system which was not even built.

The claimants countered by filing a claim for infringement and asked to join both cases in the High Court, which was agreed as is normal practice for major cases of this nature. However, worth noting here is that, whilst British Gas could not say that the High Court case would have been too expensive for them, had the defendant been an SME, the court may have been more sympathetic vis-à-vis the potential High Court litigation costs and they may well have been able to dispose of the action for a fraction of the final cost at the IPEC.

British Gas won the High Court case and the Claimants were ordered to pay 75% of their costs (in addition to their own much higher costs) so by the Claimants adopting this route, as well as pushing up costs for British Gas, created a much bigger cost for themselves.

In addition, the Claimants had paid a substantial proportion of these as security during the action. This is in contrast to the US where it is easier for litigants to run up costs for the other side at little risk of being penalised.

The discussed case shows that whilst being threatened with an expensive law suit should not be taken lightly, it may not be the end of the world. There are cost-effective ways available to startups and smaller businesses to fight such claims and whilst a commercial approach should involve consideration of likelihood of success and what is a reasonable settlement, it does not mean simply paying whatever is demanded.