Mr Justice Norris :
Essential background
- This is my judgment upon the inquiry as to damages consequent upon the Order of Floyd J dated 6 October 2009 following his decision in the infringement proceedings ([2009] EWHC 1929 (Pat)) and the dismissal by the Court of Appeal of an appeal against that Order ([2010] EWCA Civ 525). I have been asked by the parties to settle the principles upon which the assessment is to be undertaken.
- The machinery which changes an industrial roll of paper into the rolls of kitchen and toilet tissue sold in shops is called "a converting line". It involves several operations which are conducted by separate machines linked together.
- The paper is first unwound from large industrial rolls with dimensions of about 3 metres by 3 metres: this function is performed by an "unwinder". (The speed with which these rolls can be changed can affect the performance of the line). The paper web is then rewound onto a length of the cardboard tube that one finds at the heart of the tissue sold in the shops. (This cardboard tube is itself produced by a machine called a "corewinder": and the speed with which these tubes can be replaced in the rewinder can affect the performance of the line). The machine which performs this function of winding the tissue is called "the rewinder". It determines the size of each sheet on the roll and the quality, regularity and firmness of the wound tissue roll. It has to regulate the speed at which it winds the tissue in order to maintain a constant paper tension as the size of the wound roll increases. If the end product is to be single ply the rewinder is fed by a single unwinder: but if the end product is multi-ply tissue then there will be two or three unwinders feeding the rewinder: and another machine called a ply-bonder will be inserted in the line between the unwinder and the rewinder. If the end product is to be embossed or printed or laminated then the appropriate machinery can also be inserted between the unwinder and the rewinder. When the rewinder has finished its job it will have produced a "log" of the finished product. The log will be wound with the requisite length of tissue perforated into correctly sized sheets; it will have the same diameter as the product to be sold; but it will have an axial length of 3 metres.
- This case concerns the next stage. The tissue on the log has a loose end or "tail". It is passed to a "tail sealer" which glues the tail to the remainder of the log so that the tissue cannot unravel, but stays rolled up. The sealed log is then passed (via an accumulator) to a "log saw" which chops the log into the individual rolls of bathroom tissue ("BRT") or kitchen roll (household tissue or "HHT") that are to be sold. These then pass to the packaging and dispatch conveyers.
- There had been particular advances in the unwinder and in the rewinder technology (relating to the way in which the drive was applied to the roll of paper to make it unwind or rewind) which enabled the parent rolls and the cardboard cores to be rapidly changed. The potential bottle neck in the process became the tail sealer. The ideal in terms of efficiency of process and minimum wear and tear on machinery is for a process to be continuous and to operate at a steady speed. But the "log" had to come to a stop for the glue to be applied to the tail and the log sealed. The process broke down into three stages. Firstly, the tail was separated from the log and unwound to a sufficient extent that glue could be applied in the correct position on the log. Secondly, the glue was applied by sprayers or brushes. Thirdly, the tail was wound back onto the log in order to make the seal.
- Fabio Perini SpA ("Perini") found a solution to this problem. It obtained Patent No. 0481929 ("929") which related to an apparatus and method for gluing the tail to the log. The invention was that the log was rolled across a guide surface and in doing so it passed over a slit from which glue was supplied from underneath; as the log continued to roll the tail was automatically rewound over the log and pressed against the log where the glue had been applied simply by the effect of gravity. Supplying glue from a reservoir through a slit avoided the need to have something like a pump and a nozzle or rotating brushes to dispense the glue. Claim 16 was for a method of gluing the tail by rolling the log over a slit with the tail unwound. Claim 17 was for a method of so gluing the tail by rolling over a surface to allow the application of the glue and the rewinding of the tail. The invention increased the speed and improved the reliability of the converting line.
The main proceedings
- The 929 Patent was the subject of challenge in infringement proceedings commenced by Perini against its great rival manufacturer Paper Converting Machine Company Italia ("PCMC") and Paper Converting Machine Company Limited ("PCMC (UK)"). In those proceedings ("the main proceedings") Floyd J found ([2009] EWHC 1929 (Pat) at paragraph 21) that paper converting in general, and tail sealing in particular, were fields in which the patent specifications of the leading players were carefully scrutinised by competitors as soon as they were published. PCMC had produced a machine called "the Rotoseal". In the Rotoseal the log rolled over an inclined table with a gap in it, and as it passed over the gap a rotating adhesive cable transferred glue from an adhesive pan up through the gap and on to the log; as the log continued to roll down the inclined table the body of the log rolled over the tail and effected the seal. Floyd J held that this Original Rotoseal infringed Patent 929, because the glue was applied by rolling over the slit. The Court of Appeal held that he was right.
- PCMC also produced a revised version of the machine ("the Modified Rotoseal"). In this the log was stationary whilst the adhesive cable brought glue to the body of the log, the glue being applied entirely by the positive action of the adhesive cable. Floyd J held that this did not infringe the 929 Patent.
- The Re-amended Particulars of Claim in the main proceedings sought relief against PCMC and PCMC (UK) as makers and sellers of the Rotoseal, and against two manufacturers and suppliers of paper products who used the Rotoseal - LPC Group Plc ("LPC Group") and LPC (UK) Ltd ("LPC"). The case was that two Original Rotoseal machines had been installed in the premises of and used as part of the manufacturing capability of LPC Group and/or LPC, having been made at PCMC's factory in Italy and then shipped to the UK and installed and commissioned by engineers of PCMC and/or engineers of PCMC (UK) Ltd as part of a converting line.
- It was said that the Defendants had infringed the 929 Patent because:-
i) The Defendants had all used a process claimed in claims 16 and 17 of the 929 Patent ("the user case");
ii) PCMC and PCMC (UK) had also supplied or offered to supply in the UK the means (specified in claims 16 and 17 of the 929 Patent) for putting the invention into effect in the UK ("the supply case");
iii) In any event PCMC and PCMC (UK) had acted pursuant to a common design with LPC Group and LPC and were therefore jointly and severally liable as joint tortfeasors for the latter's wrong doing.
- Floyd J held :-
i) The Rotoseal machines were purchased from PCMC (the sale contract being ex-works Italy).
ii) The importation of the Rotoseal machines was by LPC.
iii) LPC operated the machines and used the method in claims 16 and 17 thereby infringing the 929 Patent.
iv) Although Perini alleged that PCMC (UK) was involved in the offer for sale or supply of the Rotoseal machines in the UK, the material was "inadequate to establish an offer for sale or supply by PCMC (UK)". The Judge held:
"Such an offer would have to be by PCMC (UK) made in the UK to supply in the UK…there is really nothing to suggest that such an offer was made. At most there is evidence that PCMC (UK) assisted PCMC Italia to conclude the contract to supply the machine in Italy. That is not enough".
v) PCMC were jointly liable with LPC for infringing Patent 929. That was because there was a common design by the supply of the Rotoseal machines, by their installation at LPC's premises by PCMC and by PCMC's engineers causing them to work (all pursuant to a contract between PCMC and LPC).
vi) LPC Group was not liable.
- Floyd J therefore ordered that there be an inquiry into the damages suffered by Perini (or, at Perini's option, an account of the profits accrued to PCMC and LPC by their acts of infringement): see paragraph 9 of the Order dated 6 October 2009.
The claims in the Inquiry
- Perini elected for damages. In its Amended Points of Claim in the Inquiry Perini claimed against PCMC and against LPC:-
i) Lost profits on the supply of converting lines (not simply the tail sealers) which (but for PCMC and LPC's infringements) Perini would have made;
ii) Lost profit on the supply of equipment additional to the converting lines;
iii) Alternatively, loss of the chance to make such sales of converting lines and additional equipment;
iv) In the further alternative, a royalty on the value of the sales of infringing converting lines;
v) In the yet further alternative, a royalty based on the value of the sales of paper products made using the infringing process.
- By amendment Perini enlarged its claim in the inquiry in two respects.
- First, Perini reopened the supply case argument in relation to the Rotoseals supplied to LPC. It alleged in the inquiry that PCMC infringed the 929 Patent by supplying and/or offering to supply LPC in the United Kingdom relying on various clauses in the two supply contracts (respectively the "015 contract" and the "016 contract").
- Second, whilst the case for infringement advanced at trial had been based upon the supply of infringing machines by PCMC (UK) (which case was rejected) and the use by LPC of the patented process (for which PCMC was liable as joint tortfeasor, being a participant in a common design) the damages case advanced on inquiry now said that PCMC had conducted itself in the same way in relation to the supply of Rotoseals to Georgia-Pacific. It was said:-
i) That PCMC had used the converting line in an infringing manner in the installation and commissioning process (an allegation that had failed in relation to the same acts as regards LPC in the main proceedings: see paragraph 175 of the judgment of Floyd J);
ii) That PCMC had acted pursuant to a common design with Georgia-Pacific in relation to Georgia-Pacific's infringing use of claims 16 and 17 of the 929 Patent (which allegation had succeeded in the main proceedings as regards LPC: see paragraph 179 of the judgment); and
iii) That PCMC had supplied or offered to supply in the United Kingdom the means for putting the invention into effect (an allegation that had failed as regards PCMC (UK) in the main proceeedings and with which the judgment did not expressly deal as regards PCMC in the main proceedings: see paragraph 173 of the judgment).
The scope of the Inquiry
- Because of these amendments the first issue on which I must rule is the scope of the Inquiry.
- In its Points in Answer PCMC describes Perini's pleaded case on supply and offer to supply (what I have called "the supply case") as an attempt to raise for the second time a case that was raised and dismissed in the main proceedings; and furthermore, which in the Court of Appeal was the subject of express acknowledgment by Perini that there had been no supply in the UK. PCMC asserts that the issues are therefore res judicata and the subject of "cause of action estoppel".
- Thus I must consider four principal issues to define the scope of the inquiry.
i) Can Perini run a supply case against PCMC in respect of the LPC contracts?
ii) Can Perini run a user case against PCMC in respect of the Georgia-Pacific contract?
iii) Can Perini run a supply case against PCMC in respect of the Georgia-Pacific contract?
iv) Can Perini run a joint tortfeasor case against PCMC in respect of alleged infringing use by Georgia-Pacific?
Can Perini run the supply case?
- For a case of indirect infringement under section 60(2) of the Patents Act 1977 ("the 1977 Act") to succeed it must be established that the offer was made in the UK to supply in the UK: see the judgment of Floyd J in the main proceedings at paragraph 173.
- In the main proceedings Perini pleaded a supply case against PCMC in paragraph 4(c) and 5(e) of the Particulars of Infringement. LPC in its Re-amended Defence and PCMC in its Re-re-amended Defence both asserted that the Rotoseal machines were delivered to LPC "ex-works of [PCMC's] factory in …. Italy on 27 July 2006 and 1 March 2007" and that in the premises "the importation of the LPC Rotoseal Machines into the United Kingdom was performed by [LPC]". Perini's Reply simply put those facts in issue.
- As I have noted, Floyd J expressly rejected the supply case in so far as it was advanced against PCMC (UK). He did not expressly reject the supply case against PCMC. But he determined (in a final manner) in the main proceedings an issue of fact essential to Perini's supply case in the inquiry. He held that the contracts were ex-works Italy and that the importation was by LPC. This issue cannot again be raised between the parties to the action in this inquiry. The facts that Perini must establish to make good its supply case against PCMC in the inquiry have already been decided against Perini in the main proceedings.
- Furthermore, if one looks at the issues raised on the pleadings, the relief claimed and the Order made, it is clear that Floyd J must have rejected Perini's supply case, because the Order made in the main proceedings declares only (a) infringement through use by LPC and (b) that PCMC is jointly and severally liable for that infringement through use by LPC. Floyd J did not grant any relief in respect of indirect infringement by PCMC. Indeed, on the findings of fact he made he could not have granted such relief. Each type of infringement gives rise to a separate cause of action: Sorata v Gardex [1984] RPC 317. So the cause of action based on supply or offer to supply by PCMC has already been determined against Perini and cannot be re-argued in the inquiry.
- When Perini appealed against Floyd J's order (including an appeal against the express finding and holding that PCMC (UK) had not supplied or offered to supply the Rotoseal machines) Perini did not claim that the Judge ought to have found that PCMC had supplied or offered to supply in the UK. On the contrary, it was accepted in Perini's Skeleton Argument and in submissions to the Court of Appeal that PCMC had supplied the Rotoseals in Italy. Thus the facts that Perini must establish to make good its supply case against PCMC in the inquiry have also been the subject of concession in the Court of Appeal.
- I therefore hold that this supply case is res judicata as between Perini and PCMC.
- Mr Turner QC submitted that this was an unfair conclusion to reach because not all of the material necessary for the decision upon Perini's supply case against PCMC was before Floyd J in the main proceedings. He submits:-
i) That all PCMC had disclosed in the main proceedings were contracts 015 and 016;
ii) That in a letter dated 9 July 2009 Perini's Solicitors noted the Defendants' case that neither LPC Group nor PCMC UK played any part in the sale of the Rotoseals, and that PCMC was merely a supplier of goods to a purchaser, and they therefore sought disclosure "relating to this issue" and specifically "documents relating to pre-sale site visits by PCMC personnel and pre-sale negotiations";
iii) That all PCMC's solicitors said in response was that, as appeared from their pleadings and evidence, their case was that the contract for the sale of the Rotoseals was between PCMC and LPC, and that in the light of this they did not see "that any other disclosure (and in particular the documents you refer to) is relevant or necessary";
iv) That in the course of disclosure in the inquiry it has now become apparent that there was a volume of other documentary material which (if disclosed in the main proceedings) Perini could have deployed in support of its supply case;
v) Furthermore, on analysis of contracts 015 and 016 in the light of that additional disclosure, the supply was not ex-works Italy but was in truth in the UK;
vi) In the circumstances what happened in the main proceedings and on appeal was that Perini did not press the supply case against PCMC on the available material, in effect abandoning the case. That is why there is no express judicial determination by Floyd J of Perini's supply case against PCMC.;
vii) It follows that the matter cannot be res judicata and the appropriate analytical tool to use in deciding whether the supply case against PCMC can be considered in the inquiry is the doctrine of "abuse of process" and the Henderson v Henderson principle;
viii) Because of the non-disclosure in the main proceedings it is not abusive to run the supply case in the inquiry.
- As is apparent for my holding that the supply case is res judicata I do not accept this argument.
- First, I do not accept that the supply case against PCMC was "abandoned". It is difficult to get the flavour of a closing speech from a transcript which assumes that the trial judge has recently read and has immediately to hand a lengthy written closing. What can be said is there is no formal abandonment of any part of the case in the main proceedings; and there is a passage of argument complaining about PCMC giving inadequate disclosure and there being sufficient material to shift the onus onto PCMC (UK) and PCMC. The supply case against PCMC remained clearly pleaded; and Floyd J made a crucial finding of fact on a matter essential to the prosecution of the supply case against PCMC. Perini cannot say they did not run the supply case: they can only say they made a tactical decision not to run it very hard. But not running a case very hard does not take one outside the res judicata doctrine.
- Secondly, the supply case advanced on the inquiry focused in part (as it had to) on the place of supply. Clause 3.2 of Contract 015 and of Contract 016 stated:-
"Delivery is intended ex-works Diecimo (Lucca) Italy (Incoterms 2000)…. Delivery is considered to be effected at the moment when the machinery has been consigned to the forwarding agent at the domicile of [PCMC]."
This term was the foundation for Floyd J's finding that the Rotoseals were imported by LPC.
- However, it now appears that title did not pass on delivery. Clause 3.1 of Contract 015 and of Contract 016 stated:-
"It is understood and agreed that until complete payment has been received, the machinery will remain the property of the Seller".
Under each contract as drawn, complete payment would not be made until the final 5% of the agreed price was paid:-
"Against line's acceptance certificate issued within 10 months from invoice date by means of bank transfer".
Since the acceptance certificate can of necessity only be issued after the line has been installed and commissioned, it must follow that title must have passed in England.
- Although the contracts are governed by Italian law, neither side argued or led evidence to establish that Italian law differed from English law. The Defendants argued that Perini was duty bound affirmatively to prove that under Italian law clause 3.1 was an effective retention of title clause, and that in view of its failure so to do that should be the end of its case on this issue. I reject that argument. Perini was entitled to proceed on the footing that the applicable law was not an issue until it was raised as an issue on the pleaded cases: since it was not, Perini is entitled to argue that when title passes is to be determined by English law.
- Treating the case as sufficiently pleaded, can Perini run the supply case (so far as it related to actual supply) in the inquiry because it now takes the point that title passed in England? In my judgment it cannot. The supply case now argued was squarely raised on the pleadings in the main proceedings, all of the material relevant to its determination (contracts 015 and 016) was before the court in the main proceedings, and the court plainly did not grant the relief sought. The issue has been determined.
- Nor can Perini run an "offer to supply" case. The issue was raised on the pleaded cases, the question of "offer to supply" was examined in the main proceedings and the form of relief granted shows that the Judge was not satisfied that there was any offer by PCMC to supply LPC in the UK.
Abuse of process
- If I had reached the view that the issue had not been substantively decided in the main proceedings I would have agreed with Mr Turner QC that whether Perini could run the supply case in the inquiry would be determined by considering whether it was an abuse of process. I would have held that such an attempt would be an abuse of process for the following reasons:-
i) So far as supply in the UK is concerned, all the relevant material (contracts 015 and 016) was adduced in the main proceedings, and the point on "retention of title" was simply not taken. The inquiry cannot be used to run an argument not advanced first time round.
ii) Further, "supply" for the purposes of section 60(2) of the 1977 Act is not determined solely by reference to when title passes. In some cases (of which the instant case is an example) "supply" is a process and not a single event, and it will be for the court to determine by reference to all the circumstances when and where as a matter of commercial reality "supply" occurs. The provision of security for the unpaid portion of the purchase price (by means of an retention of title clause) is but one factor. When "supply" occurred was in issue in the main proceedings. The Henderson v Henderson principle required Perini to bring forward its full case on that issue in the main proceedings. It appears to have accepted that, as a matter of commercial reality, supply occurred in Italy. If it failed to put all factors relevant to the issue of "supply" before the Court in the main proceedings it is now too late to do so and to argue for a different commercial reality.
iii) If bringing forward the full case on supply and on offer to supply involved insisting upon disclosure of "documents relating to pre-sale site visits by PCMC personnel and pre-sale negotiations" (as sought in the letter of 9 July 2009) then that is the course Perini should have taken. It chose not to, but to accept the Defendants' rebuff in their letter of 10 July 2009. The inquiry cannot be used to revisit tactical decisions.
- For these reasons I hold that Perini's supply case against PCMC is res judicata; alternatively that it would be an abuse of process to advance it in the inquiry.
Fact finding in the event that a supply case can be pursued
- If it had been necessary for me to consider the supply case on the facts I would have held that supply occurred in Italy and that there was no offer to supply in the United Kingdom. In brief, my findings would have been as follows:-
i) When they were entered, contracts 015 and 016 contained contradictory terms about when title passed, because PCMC was obliged to issue a "title of property certificate in favour of [LPC]" on payment of the first promissory note (under the original arrangements), and this would obviously occur before the final payment was due.
ii) After entry the terms were amended. Contract 015 was amended in May 2006 to substitute an irrevocable letter of credit for avalized promissory notes. Contract 016 was amended in October 2006 to make the same change. The effect of the amendments was to remove the retention of title clause securing the final payment.
iii) The Defendants argued that the contracts thenceforth contained no terms as to the passing of title and that under the Sale of Goods Act 1979 title passed (under Rule 5 in s.18) when the goods were unconditionally appropriated to the contract.
iv) I would hold that title to the machines is of such importance that the contracts required the provision of a certificate of title; and that the amendment to the method of payment did not amend the requirement for the production of a certificate of title on the first payment under the agreed instalment method (although this was now a payment under a letter of credit and not a promissory note). On the true construction of the amended contracts, title passed on the making of the first instalment payment. I regard the certificate of title dated 28 August 2006 under contract 015 as being consistent with (though not probative of) this reading. I would give no weight to PCMC's argument that, because in Perini's internal accounting procedures the machines ceased to be "stock" and their sale price became "a debtor" at the point of delivery, it must follow that title passed at that point. Internal accounting treatment known only to one party to the contract cannot affect the objective interpretation of the contract.
v) I would find that the first payment was due after installation in England. I would hold that that is when title passed.
vi) I would find that the passing of title in England was not determinative of the "supply" question and that as a matter of commercial reality the supply was in Italy when the goods were delivered unconditionally ex-works, shipped by LPC under its own arrangements at its own expense, and installed by LPC (with the contracted assistance of PCMC). As Floyd J found, LPC was the importer.
vii) I would hold that the decision in SABAF v MFI [2004] UKHL 45 does not preclude that finding. That case decided that the foreign vendor could not be the "importer" after title had passed: it did not hold that the foreign vendor must be the "importer" if title had not passed.
viii) I would find that there was no offer in the UK to supply in the UK.
ix) In the case of transactions such as these (where there is a train of negotiations conducted face to face and by email and telephone) the "offer" is not a single event. The task must be to identify an event (or a combination of events) of such significance occurring in the UK that one can say as a matter of commercial reality that there was (as Floyd J put it at paragraph 173 of his judgment in the main proceedings) an offer in the UK to supply in the UK.
x) Mr Turner QC submitted that various meetings took place in 2005 in the UK that contributed to the obtaining of Contract 015 and Contract 016. In my judgment it would not be enough (in order to establish indirect infringement under section 60(2) of the 1977 Act) simply to prove an event that "contributed" to obtaining a contract for the supply of the invention.
xi) The original approach was by LPC to PCMC initially. The original offer came from Mr Pescaglini in Italy and was sent by email to LPC in the UK, being copied to Mr Hughes of PCMC (UK). There followed telephone conversations between Mr Dharamshi of LPC and Mr Casella of PCMC in Italy. Mr Casella then arranged a meeting for himself, Mr Pescaglini, Mr Hughes and Mr Dharamshi at LPC's premises in preparation for which Mr Hughes (in an email which described himself as a "UK and Scandanavia Tissue Sales Manager, PCMC (UK)") attached copies of contracts for review at that meeting after which PCMC made its "best and final" offer at a trade show at Lucca in Italy. LPC were not then ready to proceed and the matter was taken up in November 2005 by Mr Hughes (copied to another employee of PCMC (UK)) by reminding him of the trade show offer, confirming a willingness to maintain the price then offered, and making suggestions as to a change in two of the modules making up the line. Mr Hughes sent revised contracts containing these alterations (which did not effect the Rotoseal's at all) by email from a UK address to LPC's UK address, of which contracts Mr Hughes then answered some technical questions relating to the unwinder, a ply bonder, a rewinder, the control software, and the log saw.
xii) Focusing on offers to supply the Rotoseal (which contained the infringement), the significant events (the initial offer and the "best and final" offer) occurred in Italy. The evidence did not establish that significant contractual alterations were prepared in the UK (rather than prepared by PCMC in Italy and forwarded to PCMC (UK) who acted as a posting box). I would find that there is no offer in the UK. Under the terms of the draft contract upon which the negotiations centred, there was never an offer to supply in the UK.
- These findings of fact are made in case I am wrong in holding as a matter of law that Perini cannot run its supply case against PCMC in respect of the LPC contracts because it is res judicata; or alternatively because it would be an abuse of process.
The case against PCMC based on its dealings with Georgia-Pacific: facts
- I must now address the question whether Perini can run a user, a supply, or a joint tortfeasor case against PCMC (even though Georgia-Pacific is not a party to the main proceedings). Although the arguments can be addressed in terms of principle, I should describe the basic factual background (since the Georgia-Pacific contract was not the subject of any factual determination in the main proceedings). Georgia-Pacific became relevant only when the Points of Claim were amended in August 2011.
- Georgia-Pacific operated converting lines at its Bridgend plant. In 2004 Perini was quoting to supply a new line ("line 17"), apparently in competition with a new entrant to the field called Futura, as well as PCMC. Perini offered both a bespoke converting line and an "off the shelf" line (called "the speculative line") that had already been built to conduct some trials. In August 2005 the speculative line was offered to Georgia-Pacific for shipment in March 2006. Georgia-Pacific said that they were very interested in the offer but would need to undertake "meaningful negotiations" with Perini.
- Negotiations did take place (in particular at a meeting on the 31 October 2005) Perini's opening offer price was €3.175 million, but by omitting some modules from the line this was reduced (on 31 October 2005) to €2.397 million and then eventually (on 17 November 2005) to €2.157 million. Georgia-Pacific offered to pay €1.4 million.
- It is known that by the 15 September 2005 Mr Hughes (the UK and Scandinavia Tissue Sales Manager of PCMC (UK)) had offered to supply a PCMC converting line (which utilised Georgia-Pacific's existing log saw) that incorporated an infringing tail sealer for €1.58 million. The offer was made by e-mail from Plymouth to Mr Housley, Georgia-Pacific's Group Development Manager, who is based at Sheffield. Mr Housley was responsible for managing new capital expenditure on converting equipment in the United Kingdom (although purchasing decisions were made by a committee). Mr Hughes met with Mr Housley (and with the director to whom Mr Housley reported, Mr Jones) on the 7 November 2005 and reached an agreement that PCMC would supply the converting line for €1.4 million (incorporating the log saw already owned by Georgia-Pacific). The line to be supplied included a tail sealer that infringed Patent 929. The shipment was to be arranged by PCMC "…CIF Incoterms 2000 (but with the unloading of the goods excluded) to Bridgend….".
- As provided for in the terms of the contract between PCMC and Georgia-Pacific, PCMC supervised the installation and start up of the converting line at Bridgend, ensured that it was running properly and trained Georgia-Pacific staff in its use. 15% of the purchase price was payable on start up and preliminary acceptance of the converting line; the final 5% was payable on final acceptance. Based upon the payment terms contained in the PCMC contract which are available, I find that the contract between Georgia-Pacific and PCMC probably contained a retention of title clause. I find the title passed in Wales.
- The foregoing is a sufficient context within which to address the legal issues I must decide concerning the scope of the inquiry.
The case against PCMC based on its dealings with Georgia-Pacific: law
- In paragraph 8H of its Amended Points in Answer on the Inquiry it is admitted by PCMC that, given the findings made in the main proceedings, Perini is entitled to pursue before me damages from PCMC for acting pursuant to a common design with Georgia-Pacific in the infringing use of tail sealing technology incorporated in line 17. But PCMC submits that Perini is not entitled to recover damages for alleged use by PCMC (in the course of installation and commissioning of line 17) of the patented process; nor is it entitled to seek damages from PCMC for a supply in the UK, or for an offer to supply in the UK. In my judgment this objection is a sound one.
- First, the scope of any inquiry is determined by the proper interpretation of the Order which directed it. Paragraph 9 of the Order made by Floyd J on 6 October 2009 provided (so far as relevant):-
"There be an inquiry as to the damages suffered by [Perini]… by reason of [PCMC] and [LPC]'s acts of infringement…."
Since the inquiry is simply the relief to which Perini is entitled in respect of the causes of action it has established, one would think that the reference to PCMC's and LPC's "acts of infringement" is a reference back to paragraphs 3 and 4 of the Order (which contained the declaration as to infringement by use and joint and several liabilities for infringement by use). In their strictest and most literal sense these declarations related only to infringements arising from the two Original Rotoseals sold to LPC. But PCMC was right to concede that upon its proper interpretation the Order would permit the inquiry to cover infringement by use (and joint and several liability for infringement by use) arising from the sale of Original Rotoseals to any other purchaser on terms which included a provision by PCMC of installation and commissioning services of the type provided to LPC.
- But before me it has been argued that it is permissible to take a much broader view and to extend the inquiry to infringements other than infringements by use. In the General Tire Case [1971] RPC 173 General Tire alleged infringement of its patents relating to oil-extended synthetic rubber. The Particulars of Infringement would have involved decisions upon a number of different compositions and a number of different tyres. But the trial proceeded by reference to one composition and one tyre (the J.11.T). The Court made a declaration of infringement in relation to the J.11.T and ordered "an Inquiry what damages the Plaintiffs have suffered by reason of the infringement…..of the Plaintiff's said Letters Patent". In the Inquiry (reported at [1975] RPC 203) the question was addressed as to whether a number of other compounds and other tyres also infringed the patent, technical questions were raised and expert evidence was received and other claims in the patent were construed. This was an exceptional case and the reason why this course was taken does not appear from the report (though there is a reference to the directions given and an observation on the convenience of the course adopted at [1975] RPC 203, 207).
- Of this case Jacob LJ said (obiter) in Unilin Beheer v Berry Floor [2007] EWCA Civ 635 at paragraph 49:-
".. It is true that in an inquiry as to damages or account of profits the patentee is allowed to claim relief for types of alleged infringement not ruled on by the trial court. This saves the formal issuance of fresh proceedings in respect of these and is permitted as a matter of convenience, see General Tire [1975] RPC 203 at 207. And of course if, in the inquiry or account, the patentee alleges a type of infringement not considered by the trial court, the court conducting the inquiry or account will have to rule on whether it falls within the scope of the patent. But so far as the originally pleaded and proved type of infringement is concerned the matter is res judicata not merely as an issue but as a cause of action in respect of that type of infringement. "
The question before me is whether, although in some circumstances the claimant is allowed as a matter of convenience to claim relief for types of alleged infringement not ruled on by the trial court, he is entitled (in the teeth of opposition) to do so in respect of a type of infringement (a supply case) on which he failed at trial as regards the selected defendant, but now seeks to assert in respect of a third party.
- Counsel for PCMC submit that there is no such right. They say that their present concession goes to the limit of what the claimant may do as of right: namely that the Court in the inquiry will look into further examples of the types of infringement that were established at trial. They rely on the decision in Building Product Design Ltd v Sandtoft Roof Tiles Ltd [2004] FSR 823. The claimant successfully established infringement of its ventilator patent by the defendant who made "clay half-round ridge vent roof tiles". The claimants elected to pursue an inquiry as to damages. They sought to include within the scope of the inquiry (a) concrete half-round ridge vent roof tiles (b) clay "hog's back" ridge tiles and clay "wing angle" ridge tiles. Neither of these categories had been identified in the Particulars of Infringement in the action. The judge held that the Particulars of Infringement had to give a least one example of each type of infringement alleged (because each gave rise to a separate cause of action); that the inquiry could include an unpleaded variant which had features which were immaterial to the claim (but were otherwise identical to the product identified in the Particulars of Infringement); but the inquiry could not include an unpleaded variant which demonstrated a possibly relevant physical difference (because that would be to introduce a new cause of action in the inquiry). The judge later refused to permit a second action to be brought in relation to the "hog's back" ventilators on the ground that that type of infringement ought to have been alleged in the first proceedings.
- I do not consider that the Building Products case establishes a principle which governs the case before me. There are occasions in which a new cause of action can be raised and adjudicated upon in the inquiry. The question is always one of fairness and convenience. The question of introducing new causes of action into the inquiry should be specifically raised and adjudicated upon by the Court at the outset of the inquiry (either upon a focused application or at the first directions hearing). That was not done in the present case. I hold that this inquiry is limited to PCMC's liability as joint tortfeasor in respect of Georgia-Pacific's user of the process specified in patent 929.
- Whatever course may on occasion be convenient, the starting point must be the originating order. Upon the terms of Floyd J's order the inquiry is not into what infringements have occurred: it is into the damage caused by the infringements. The inquiry is the relief granted upon the causes of action established. Perini pleaded and proved a cause of action for infringement by user against LPC, and established that PCMC is jointly liable for the tort. It is just and convenient to extend the inquiry to other cases of infringement by use for which PCMC is jointly liable (even if technically this involves introducing new causes of action) because these involve the same type of infringement as that on which the Court has ruled. Perini pleaded but failed to prove a cause of action for infringement by supply against PCMC. Having pleaded and failed to prove that type of infringement (which involved findings about the place of supply) against PCMC in respect of the supply to LPC it is not in my judgment convenient or just to permit Perini to go outside the terms of the inquiry which it sought and obtained, and to introduce a substantively new cause of action, reopening by reference to a different customer (who is not a party) the supply case which failed in respect of LPC.
- Accordingly, I rule that the inquiry is limited to the liability of LPC for its infringement by use (for which damages PCMC is also liable as joint tortfeasor), and the liability of PCMC as joint tortfeasor for any infringing use by Georgia-Pacific.
Fact finding in the event that the supply case can be pursued
- If I had held that as a matter of principle Perini could run a supply case against PCMC in respect of the supply or offer to supply to Georgia-Pacific, I would have held:
i) The supply was in Italy because PCMC was obliged to deliver the goods to the shipper for the purposes of transit to Bridgend.
ii) There was (on the much more limited material relating to Georgia-Pacific) an offer in the UK to supply.
iii) The offer was to supply in Italy.
The approach to damages
- Having determined the scope of the inquiry, I turn to the next group of issues. Infringement of a patent is a tort. The object of the award of damages is to give Perini, as the injured party, such sum of money as would put it in the same position as it would have been if it had not sustained the wrong by way of infringement for which it is now receiving compensation or reparation. So one asks: what would have been the position of Perini if PCMC and LPC and Georgia-Pacific had not acted improperly?
- I will set out my approach to answering that question before descending to the detail of the issues of principle that were raised. The burden of proof lies upon Perini and, apart from evidence which may shift the burden, the burden lies upon them to the end. Perini must adduce evidence from which the Court can conclude (if necessary by drawing proper inferences from proven facts) that it is more likely than not that the wrongful conduct of LPC, Georgia-Pacific and PCMC resulted in the damage of which Perini complains. Once causation is established (and subject to any question of remoteness arising in this case) the issue is one of measurement. As to measurement:-
" It is probably a mistake in language to treat the methods usually adopted in ascertaining the measure of damages in patent cases as principles. They are the practical working rules which have seemed helpful to judges in arriving at a true estimate of the compensation which ought to be awarded against an infringer to a patentee. In the case of damages in general, there is one principle which does underlie the assessment. It is what may be called that of restoration. The idea is to restore the person who has sustained injury and loss to the condition in which he would have been had he not so sustained it. In cases of financial loss, injury to trade, and the like, caused either by breach of contract or by tort, the loss is capable of correct appreciation in stated figures. In a second class of cases, restoration in point of fact being difficult ... the task of restoration under the name of compensation calls into play inference, conjecture and the like ... The restoration by way of compensation is therefore accomplished to a large extent by the exercise of a sound imagination and the practice of the broad axe….In all these cases ... the attempt which justice makes is to get back to the status quo ante in fact, or to reach imaginatively, by the process of compensation, a result in which the same principle is followed…." Per Lord Shaw in Watson Laidlaw & Co v Pott Cassels and Williamson (1914) 31 RPC 104 at 117-118.
- I have identified the claims made by Perini at paragraph 13 above. Having determined the scope of the inquiry the full list of issues now is:-
i) Can Perini recover from LPC and PCMC (because of their infringement by use) damages for loss of profit on the sale of (a) the entire converting line or (b) the tail sealer by PCMC to LPC?
ii) Can Perini recover from LPC and PCMC (because of their infringement by use) damages for loss of the chance of profit on the sale of (a) the entire converting line or (b) the tail sealer by PCMC to LPC?
iii) In either case can Perini add to the loss claimed loss of profit (or loss of the chance of profit) on the sale or supply of ancillary equipment or services?
iv) Can Perini recover from PCMC (because it is a joint tortfeasor in respect of infringing use) damages for loss of profit, on the sale of (a) the entire converting line or (b) the tail sealer by PCMC to Georgia-Pacific?
v) If not, can Perini recover from PCMC damages for the loss of the chance to make those profits?
vi) If in any case Perini cannot recover damages for lost profits or the chance of lost profits can it recover compensation based on a royalty for the use of the invention in the relevant converting line?
vii) If so, should that royalty be based on the machinery supplied (whether the tail sealer or the whole line) or on the goods produced by the machinery?
- Addressing these issues requires me to determine of a number of questions of principle that were raised by Counsel for PCMC and LPC.
Causation issues
- The first is: what does Perini generally have to prove to show that LPC's infringement (or Georgia-Pacific's infringement) caused the loss claimed by Perini? According to ordinary principles, Perini must adduce evidence to show that it is more than 50% probable that, but for LPC's (or Georgia-Pacific's) infringing use, the loss for which Perini seeks compensation would not have occurred. Perini primarily says that it lost a sale to LPC or to Georgia-Pacific, or the chance of such a sale; its secondary case is that it lost the royalty it could have levied if permission for use had been sought.
- LPC and PCMC submit that if that is the test, then since the wrongdoing is infringing use of a method, as a matter of logic the loss of a contract cannot flow from the use. The use was by machinery that had already been supplied, so the relevant contract was lost to Perini before the infringing use commenced. The consequence of this submission is that only royalty-based damages could be awarded where the infringing act is use of a process or use of an apparatus.
- I reject this argument. I do not accept that the use of the method only started when the Original Rotoseal was actually first turned on (for commissioning or for production). Perini submitted that the infringing process was written into the contract between PCMC and LPC. I accept this submission. The "Items included in the contract" specify an original Rotoseal. The specification of the Rotoseal states:-
"After the log is discharged from the positioning rollers, the log rolls over the glue wire with the tail following behind the log. The log picks up a line of glue as it rolls over the wire….."
That is a statement of the infringement. Where the contract expressly requires the infringement to occur, and under the contract the machinery is installed and commissioned and is thereafter put into production using the infringing method, I do not see why a common sense view of causation must necessarily and as a matter of principle exclude the possibility that the promotion of that contract specifying that the infringing use be employed caused Perini to lose a contract employing its patented method which it otherwise would have gained. I hold that, notwithstanding the nature of the infringement, I do have to look at the case on loss of profit.
- The next issue of principle is: if Perini is claiming to have lost a contract to supply LPC or Georgia-Pacific because those potential customers contracted to have machines employing the infringing method supplied by PCMC, what sort of causal link does Perini have to show between the lost contract and the infringement?
- LPC and PCMC submit that the burden lies on Perini to show exactly why the use of its patented method was causative of the loss of the contracts entered into by LPC and Georgia-Pacific.
- In the General Tire Case [1976] RPC 197 Lord Wilberforce explained at p.212
"Many patents of inventions belong to manufacturers, who exploit the invention to make articles or products which they sell at a profit. The benefit of the invention in such cases is realised through the sale of the article or product. In these cases, if the invention is infringed, the effect of the infringement will be to divert sales from the owner of the patent to the infringer. The measure of damages will then normally be the profit which would have been realised by the owner of the patent if the sales had been made by him….."
- In Catnic Components v Hill & Smith Ltd [1983] FSR 512 the claimant held a patent for cavity wall lintels which the defendant infringed by its product. The claimant sought in the inquiry as to damages loss of profits in respect of all lintel sales lost to the defendant. The defendant argued that had it not sold infringing lintels (a) it would instead have provided each of the customers with its own non-infringing lintels, or (b) such customers would have bought lintels from other competitors of Catnic, so that the defendant's infringement caused no loss. Falconer J (relying on the passage from General Tire which I have just cited) dealt with this argument at p.524 of the report in this way:-
"For the [claimants] [counsel] submitted that it would be consistent with the attitude of the law to any infringer for the law to assume that the claimants would have made, with their patented lintels, those sales made by the defendants with the infringing lintels unless and insofar as the defendants prove the contrary. In a case such as this, where the [claimants] had been established for a number of years as the market leaders with their patented construction, having available ample production capacity and stocks … but never having granted any licence under the patent, and where defendants not previously in business in this field at all, entered the market with the object of doing so at the expense of the [claimants] and using an infringing version of the [claimants'] patented construction, in my judgment that is the proper approach for the court to adopt".
The endorsement of the approach (that the law should assume that the patentee would have made those sales actually made by the infringer unless and insofar as the infringer proves the contrary) was thus qualified.
- PCMC and LPC submit that the instant case is a process claim and not a product claim, and that in that context the Court should adopt a more exacting approach. With a product, what the customer wants is the product itself: if he cannot buy it from the infringer it is natural to suppose that he would buy it from the owner of the patent. But where the customer is paying to achieve a result (e.g. a glued paper log) he may not care how that result is achieved: if he cannot achieve the result by acquiring something from the infringer it by no means follows he would achieve it by acquiring something from the owner of the patent. He may be able to achieve the result in some other way. PCMC say that Perini must positively establish that the LPC and Georgia-Pacific contracts were lost to Perini because PCMC used an infringing method.
- They rely on the decision in Coflexip v Stolt Comex [2003] EWCA Civ 296. Coflexip patented a process for undersea pipe-laying. Stolt used the process in 15 contracts. Coflexip pleaded that "but for" the infringement by Stolt, Coflexip would have been awarded the contracts: it argued that Stolt's performance of the actual contract was unlawful and that damages should be awarded on the footing that the contract would be lawfully performed by others (in particular, itself). Stolt argued that such an allegation did not properly plead any causal link between the loss of the profits claimed and the infringement of the patent: Stolt said that Coflexip had to plead and prove that a cause of the award of the contracts to Stolt was that the infringing method of pipe-laying was to be used in the performance of the contracts. At first instance Jacob J held that Stolt was right:-
"This is a case in which it is alleged that the defendants used a particular method of laying the pipe. That, it is said, in itself entitles the claimants to say the competition damaged them by reason of the infringement. They say they are entitled to all the consequences of that competition. What is lacking, in my judgment, is any nexus between the patented invention and the contracts. Whether one puts it on the basis that all the contracts would have been obtained or that there was a chance that the contracts would have been obtained, I am of the view that the current pleadings make it impossible to proceed because they do not disclose any basis for deciding either one or the other or what the chance might have been…. The customer was not interested in the process at all and it was not necessary to specify it to obtain the contract." (Cited at [2003] FSR 728 at 733).
- The Court of Appeal held that the judge was wrong to have struck out Coflexip's statement of case, and held that Coflexip's view of the law of causation (albeit not accurately set out in its current pleading) was at least arguably correct, but that a definite decision should only be made when the facts were known. So the law was not established one way or the other.
- Perini say that the point does not arise in this case because (as I have already noted) the contracts in this case did in fact specify that the machinery to be supplied to LPC should utilise Perini's patented method: whereas in Coflexip Stolt could under the contract have used any method and simply chose the patented method: see the concluding words of the citation from Jacob J's judgment above. As a point of factual distinction this is accurate. But it does not mean that PCMC's argument can simply be ignored. The nature of the causal link between the loss of the profits claimed and the infringement of the patent must still be addressed.
- As Aldous s LJ observed in Coflexip (at p.735) many reported cases in this field are useful illustrations of judicial reasoning, but are apt to mislead if decisions on particular sets of facts (or observations in judgments leading up to such decisions) are later relied on as establishing rules of the law. I would hold only:-
i) that the legal burden of establishing that the loss claimed was caused by the infringement proved lies on Perini;
ii) that in general, since the object of a patent is to confer a monopoly of profit and advantage, any infringement of that monopoly is likely to cause some loss or damage by the loss of actual sales or the chance of sales or through the appropriation of something of value;
iii) that in general, where the patent belongs to a manufacturer who exploits the invention by selling products at a profit (whether the products embody a patented invention, or in their operation employ a patented process, or are themselves produced by a patented process) the legal burden will be discharged (and the nexus between infringement and loss established) by the inference which the court is prepared to draw that the effect of the infringement is to divert sales from the owner of the patent to the infringer;
iv) that the infringer may adduce evidence which demonstrates that the usual inference does not hold good in a particular case, so that whether the claimed loss is caused by the proven infringement must simply be decided on the proved facts and the inferences properly drawn from those facts;
v) that is to be done using commercial common-sense, avoiding over-refined analysis, but taking account of all factors which may reasonably bear on the issue and (in particular) giving full weight to the consideration that the patent owner has a right to a monopoly in respect of the invention and that the infringer's putting into the marketplace the infringing product or process has destroyed that monopoly;
vi) that the focus of any such inquiry is not why the infringer or infringers actually entered the real contract, but whether (on the assumption that the infringing product or service was not available) the owner of the patent would or might have secured the infringer's contract for himself.
- This summary requires some elaboration. First, I do not think that any distinction in principle can be drawn between product patents and process patents. An infringer does not commit a legal wrong simply for the sake of doing so. He infringes the patent owner's rights because he thinks that doing so eliminates a competitive disadvantage as against the patent owner and confers a competitive advantage as against others in the field. I see nothing wrong in taking as a starting point that the infringer succeeded in his object. In a straightforward product patent the competitive advantage is that the infringer's product embodies the invention. But a method patent is no different. In the United Horse Shoe Case [1888] 5 RPC 260 the competitive advantage was that the nails were produced by machines using a patented method (purchasers seeking out such nails because they had a higher reputation, although they may not have been any better): notwithstanding that the patent concerned a method, the Lord Chancellor said:
"I think there is considerable evidence to show that purchasers generally would have sought that particular nail, and I do infer that [the claimants], but for the intervention of the [the defendants], would have effected a large part of these sales".
So the same inference was drawn.
- Second, what caused the infringer to enter the contract is not the same inquiry as whether the infringement caused the patent owner the loss of a contract; and it is the second inquiry that is relevant to the question "What loss was sustained by the patent owner?". An infringer may have entered the actual contract because the price was lower or the delivery time earlier. But if the customer had not been able to accept the infringing offer then the customer might have been willing to pay more or to wait longer for the patent owner's product (unless, for example, the subject matter of the infringement was an irrelevance and a similar non-infringing product could be acquired from a third party at the price and within the timeframe offered by the infringer). The reasons why in the real world a customer made a particular actual choice do not determine what choice he would have made in the world of "what would have been".
What loss is caused?
- The final question of general principle concerns the interrelationship in infringement cases of causation questions and the possible award of damages for loss of a chance. In infringement cases it is clear that the loss of a chance of securing a contract to supply a product incorporating the patented invention can be regarded as compensatable loss. Sometimes the way in which this outcome is expressed makes it seem as if the Court is simply taking a broad view of making a "fair estimation" of the loss, such as would be made by a jury (without distinguishing between causation and assessment). But I think on analysis it becomes clear that the Court is recognising (and then valuing) the loss of the chance to make sales.
- Thus in Gerber [1995] RPC 383 the infringer made 25 sales over a five-year period to 23 customers. The infringer acknowledged that on the balance of probabilities four of those infringing sales would have been made by the patent owner. The patent owner acknowledged that on the balance of probabilities one of those infringing sales would not have been secured for itself. The remaining 20 sales were in dispute. The debate centred upon how the Court should go about addressing damages in those circumstances. Jacob J held (at [1995] RPC 383 at 407:-
"Miss Heilbron [Counsel for the infringer] said that as to the remaining 20 I should consider the evidence as to each transaction individually and decide whether or not Gerber would have made of the sale absent [the infringer]. Every sale with an over 50% probability would count for Gerber on a lost profits basis, every sale worth 50% or less would count only for a reasonable royalty. Mr Floyd [Counsel for the patent owner] favoured a more general approach, that having heard the evidence about all 25 sales I should form a general view as to what proportion of these sales Gerber would have made absent [the infringer]. I think Mr Floyd is right. This is not just a judicial cop-out to save me going through the detailed exercise required by Miss Heilbron's approach. He is right both in principle and authority. … An example shows how unfairly Miss Heilbron's approach could be. Suppose 20 sales, each with a 49% chance of Gerber making the sale. Using her method one would conclude that Gerber would not have made any sales. Mathematically that would be wholly improbable…. The Floyd method would give Gerber nearly half the sales, reflecting the probabilities as a whole. I believe that to be the court's task, though mathematical precision is impossible. Theoretically, one should look at the evidence concerning each sale, form a view as to the probability of that going to Gerber, and a view as to the lost profit on each sale. There should then be an overall summation of the products of each probability and its associated lost profit. In practice that would be a pointless exercise given the impossibility of coming up with anything like precision, for each probability or each particular loss of profit."
- This approach was upheld in the Court of Appeal ([1997] RPC 443), applying Allied Maples Group Ltd v Simmons & Simmons [1995] 1 WLR 1602 at 1611. The enquiry is whether the patent owner is, as matters stand, worse off than he would have been if the infringer had not participated in the unlawful contract. This depends on what the customer would have done if the infringing contract was not available. In the passage from Allied Maples referred to in Gerber Stuart-Smith LJ said:-
"In many cases the plaintiff's loss depends on the hypothetical action of a third party, either in addition to action by the plaintiff … or independently of it. In such a case does the plaintiff have to prove on the balance of probability … that the third party would have acted so as to confer the benefit or avoid the risk to the plaintiff, or can the plaintiff succeed provided he shows that he had a substantial chance rather than a speculative one, the evaluation of the substantial chance being a question of quantification of damages? … I have no doubt that … the second alternative is correct."
In Gerber the Court of Appeal held (at p.460 and 461) that the amount of the loss of the patent owner in that case was a question in the second category because it depended on the hypothetical actions of third parties, that is to say buyers of the infringing machines.
- The question remains: what application do these principles have to a case where the infringer is the customer (through infringing use) and is a party to the action? I do not think that the law requires the patent owner to establish on the balance of probabilities that the infringing customer would have entered into a contract with him simply because the infringer is a party to the action. Even though the infringer is a party he still inhabits the "world of what would have been". If he could not have entered a contract containing the infringing use what would he have done in the hypothetical market that included the patent owner and his other competitors, but excluded the offeror who by common design with the infringer was offering the infringing use? The fact that what is under consideration is the hypothetical act of a customer who is a party rather than of a customer who is a third party (but might be called as a witness) seems to me to make no difference in principle.
Assessment of the loss
- The next step is assessment of the damage. The position to which Perini is entitled to be restored is that which would have obtained if PCMC's infringing tail sealer had not been on the market when LPC and Georgia-Pacific were looking for converting lines. The assessment of such damages requires the Court to to construct and value hypotheses. As Jacob J put it Gerber v Lectra Systems [1995] RPC 383 at 395, the Court is "asked to re-write history" and to form a view about "what would have been" (rather than its ordinary function in civil actions of determining "what was"). In that context one cannot expect much in the way of accuracy.
The evidence
- I can at last turn to the facts. None of the witnesses called in this case came to mislead the court. Each was a businessman with a natural tendency to be defensive of his company's interests. Each was invited to call to mind business decisions that had been taken 6 years earlier. Those business decisions were (in the artificial atmosphere at the Court room) isolated from a whole mass of other contemporaneous decisions and (being in their nature multi-factorial) were subject to examination as to what was at the time important and what was not important, what at the time needed to be achieved and what was achievable. Sometimes the witnesses were asked to consider what would have been their attitude in circumstances which did not actually occur, and which they were now invited to consider with the benefit of hindsight and with the prospect of a damages claim in the background. It is no surprise in this context that, without any dishonesty or conscious desire to mislead, in their present recollection some factors favourable to their present interests seemed to weigh more heavily than factors adverse to their present interests. This does not mean that I give no weight to any of their evidence or that I intend to construct a narrative of my own; it is simply a reminder that hindsight and current interest are capable of having a powerful effect on a witness' recollection of what he thought and why he acted years earlier.
- Contemporary documents do, of course, provide a rich source of evidence; but here again I remind myself that the activities I must review were commercial negotiations, and (without imputing dishonesty to anyone) it is only realistic to recognise that statements made in the course of negotiations may not have a solid grounding in fact. "I need this by Tuesday at the latest" may not mean exactly what it says.
The market
- I begin with the market generally. At the end of 2004 Perini held 70% of the European market for converting lines dedicated to bathroom and kitchen tissue. Its major competitor was PCMC, which had by then developed a highly competitive rewinder on the back of which it could sell entire converting lines. There were two new entrants: Gambini which was "capable of proposing complete lines to produce toilet rolls and kitchen towel (strongly opposed by our patents)"; and Futura which was "a new and aggressive competitor" that was "now offering complete lines to medium customers and soon will be recognised as a new solution provider in the tissue business" (to quote from a market and competition analysis prepared by Perini in November 2003). This competition was offering prices approximately 15-20% lower than Perini. Perini responded in early 2005 by heavily promoting a new technology called a "Time line" with a high performance rewinder capable of dealing with up to 1000 metres of paper per minute (instead of 500-650 metres per minute achieved by the previous generation). This was a development of the Sincro system (which itself was still offered to cover the lower operating speeds).
- In May 2005 Perini made record sales of converting lines. This had two effects. First Perini's technological leadership provided a response to the price discounting that competition (particularly from Futura) was otherwise causing; second, the volume of business generated meant that Perini might be exposed to competition from other manufacturers of converting lines because of extended manufacturing lead times occasioned by the volume of Perini's business. Perini had to put in place a system for managing production peaks by utilising facilities in Brazil and by using subcontractors. These subcontractors produced individual modules for delivery to Perini's factory and Perini made sure that it had more than one subcontractor for each module to avoid production bottlenecks. But there was a potential bottleneck at Perini itself, where Perini had to undertake the final assemble and checkout with its own skilled engineers. I have taken this account of the market largely from Perini's contemporaneous internal reports and analysis.
- In his oral evidence Mr Allen (the UK regional sales office Director of Perini) sought to play down the significance of these comments about Perini's competitors, explaining that they related to Europe as a whole that were of lesser application in the UK. I accept that there may be some variations in Europe, depending upon which market a particular competitor decides to attack, but I am satisfied (because Perini did not single out any particular markets) that its own analysis presents a broadly accurate picture even in the UK.
The claim relating to LPC
- It is in this market that LPC and Georgia-Pacific were customers. I will deal first with LPC. LPC had operations in the UK (and was thinking of expansion into Germany). It was a long standing customer of Perini. Between 1982 and 2000 it purchased 11 lines from Perini (including seven Sincro lines). But in about 2000 there was a hiccup in the relationship over the performance of a Sincro XXL that Perini had supplied. Nonetheless Mr Dharamshi of LPC had a preference for Perini equipment even if it cost more. That said, LPC had bought a Gambini converting line for kitchen tissue (though for reasons that were not clear it incorporated a Perini logsaw). Mr Dharamshi was also aware of the availability of second hand equipment (and he was on the mailing list for at least one of the suppliers of such equipment). But he did not use this resource to assemble modules from different manufacturers in order to make up a converting line for BRT or HHT. As indicated, he generally purchased all the modules in a converting line from a single manufacturer and he purchased the packaging and conveyor parts of the line from another manufacturer.
- LPC had two manufacturing premises in Leicester. In late 2004/early 2005 it was planning to relocate some of that manufacturing capability to a new site at Rothley Lodge. Rothley Lodge would use some of the existing converting lines (which would be relocated to that site) and would in addition use new lines. The product was to be "own label" BRT and HHT for the major supermarkets.
- In late 2004 LPC was also considering establishing a manufacturing facility in Germany. In connection with these plans LPC sought from Perini a quotation for six converting lines, four for Germany and two for England (a BRT and an HHT line). At a trade exhibition in April 2005 Mr Dharamshi then sought a quotation for an additional UK line (referred to as "the seventh line"). On the 13 May 2005 an outline agreement was reached in principle for the purchase by LPC from Perini of six lines, two of them for the UK. They incorporated the Time rewinder and the patented tail sealer with a capacity to operate at up to 45 logs per minute. The agreement in principle that is recorded in Mr Allen's e-mail also states:-
"Any further Perini machinery ordered by LPC from [Perini] by 31.12.2007 will be at a 40% discount on the offer price"
It later said:-
"This agreement is accepted by both parties to be a complete, total and final solution to the combination of supplying new machinery to LPC and satisfying LPC's requirements over the XXL and no further claims on that subject will be entertained…We had already explained that any eventual cancellation of any lines will in no way change the acceptance of this agreement as a final and complete solution…."
This was a reference to the hiccup that had occurred in the relationship and which was now being repaired.
- This agreement in principle coincided with Perini's record sales month, and the pressure such a volume of orders placed upon lead times. The original quotation for the UK lines had contemplated delivery in early 2006. The quotation for the seventh line had not contemplated any delivery time. The "in principle" agreement contemplated adherence to the original schedule. It also contemplated an immediate commitment with a 5% payment immediately, and further progress payments in August 2005 and November 2005.
- However, LPC made no immediate commitment. So on 1 June 2005 Mr Allen wrote:-
"Perini has received more confirmed orders than anticipated and we now have to let you know that the checkouts for the UK BRT line would be mid March 2006 and the checkouts for the UK HHT line end April 2006. These dates are in themselves critical and we must have a written confirmation from you by return to maintain them or they will also go further back as more confirmed orders are arriving at Perini".
This was obviously a statement made in the course of negotiations to pressurise the customer into placing a purchase order: and whilst I have no doubt that it did embody an essential truth, I do not take it as a statement that (as at June 2005) it would have been impossible to shorten the manufacturing lead time if that was necessary in order to secure an order later placed by Mr Dharamshi.
- This did not have the desired effect, and a week later Mr Allen wrote:-
"We are now at a situation, with the arrival of further confirmed orders in Perini, that the checkouts for the BRT line would now be in May 2006 and for the HHT line in June. Again, there are more projects in advanced stages of negotiation which could result in confirmed orders in the next days and the above dates would again slip".
I view this statement in the same light.
- In fact, at precisely this time LPC was seeking a quotation for a BRT line from PCMC. In its quotation documents PCMC offered a lower specification converting line (including an Original Rotoseal tail sealer performing at 35 logs per minute) for a significantly lower price than Perini had offered, its quotation concluding with the words:-
"A special delivery if order received before end of May 2005 – machine ready for checkout at PCMC Italia in four months from official order".
The accompanying email said:-
"It is important to underline that we had obtained a very quick delivery at the condition of closing the order within one week. This short period of time is basically due to two reasons, first of all the month of August, second the fact that for this short period we have the possibility to take some material from other orders to use to build the machines of your line".
- Mr Dharamshi would not (in May 2005) have wanted delivery of a converting line for Rothley Park in October 2005 because he did not know at that stage when the building would be complete; and so far as the machinery lay out drawings were concerned they were only at a preliminary stage. But I find that the idea that a competitor could provide more attractive lead times than Perini was of interest to him.
- It was not until September 2005 that Mr Dharamshi had a clear idea that Rothley Lodge would be completed in about April 2006. Although he knew that (if Mr Allen's predictions were accurate) Perini would not be able to deliver in April 2006 if the order was only being placed in September 2005, and although he had a lower quotation and possibly a faster delivery from PCMC, he nonetheless continued to explore what Perini had to offer. So at the beginning of September 2005 LPC asked Perini to provide the machine layout so that the floor in the building could be laid to accommodate the drainage requirements of the Perini converting line. In my judgment this was not a cynical demand made of a supplier with whom LPC had no honest intention of placing an order. LPC also sought modified (it seems to me slightly downgraded) specifications for one of the converting lines. Again, I can see no reason why this should be done unless Mr Dharamshi thought it was possible that he might wish to place an order with Perini even in the light of the lead times which had been quoted. Mr Dharamshi did not in his e-mails ask for a revised delivery date.
- From internal Perini documents one can see that (if a normal manufacturing lead time was adopted) in September 2005 Perini contemplated delivery on the UK lines in October and November 2006. The prices they were quoting effected the 40% discount on offer price which had been agreed in principle in May 2005. As Mr Allen acknowledged to Mr Dharamshi:-
"… We have an agreement that the actual prices to LPC will be very special according to the option LPC [chose] back in May 2005".
- But at the same time as dealing with Perini, Mr Dharamshi was pursuing the quotation which had been offered by PCMC. On 6th October 2005 Mr Dharamshi met with PCMC Executives who had flown over from Italy and with Mr Hughes. The discussions led to PCMC offering contract 015 for a Sintesi 65 rewinder line and contract 016 for a Sintesi 55 rewinder line, each incorporating an Original Rotoseal and containing as part of the specification the description of the infringing process. It was intended that these contracts should be signed at a trade exhibition later in the month.
- Notwithstanding the availability of these two contracts Mr Dharamshi continued to deal with Perini as if he was genuinely intended to buy converting lines from them. Thus in mid-October 2005 he appeared to Perini to be interested in buying one Time line and one Sincro line, for he asked Perini to change their design so that they would be built with a different "handedness" because he was intending to swap their locations in Rothley Lodge. He also asked for revised and lower specification quotations (utilising only the Sincro technology). Mr Allen of Perini suspects that these October quotations were requested only for the purposes of comparison with the contracts which had been offered by PCMC. But I do not consider that Mr Dharamshi was that cynical and dishonourable. He had not excluded Perini and thought it possible they might adjust their normal delivery. He had not committed himself to PCMC. Indeed at this time also sought a quotation for for a fairly basic specification converting line from Gambini (including a tail sealer in which the glue was not applied using the nozzle or brush technology).
- Mr Dharamshi attended the trade exhibition in October 2005. He did not sign the contract with PCMC. By this time he had decided that in the phased move to Rothley Lodge he wanted to install one new converting line which could be in production whilst one of the existing lines was dismantled and relocated. Mr Dharamshi saw PCMC, Perini and Gambini at the trade exhibition. He believed Perini's manufacturing lead time to be of the order of nine or ten months. If he was to follow his business plan he had only six or seven months available to him. His evidence is that at a chance meeting he asked a representative of Perini (whose identity he could not recall) whether it would be possible to shorten the lead time. He was told that it was not. He says he asked if Perini could supply a second hand converting line for use until such time as a new converting line could be built. He was told that it was not. I do not consider that this evidence has been fabricated: with one qualification I think that it is generally reliable. The one qualification is that in the artificial light of litigation and with the benefit of hindsight the tone of Mr Dharamshi's request and the tenor of the response that Perini's representative may not be accurately recollected. The former may be remembered as more forceful than it actually was; and the latter as more final.
- I am, however, satisfied that by mid November 2005 (yet more time having slipped away) delivery time had become an issue. Mr Dharamshi had still not placed a contract with anyone. PCMC had proposed a deadline of the 14 October 2005 for acceptance, which they later extended until 21 October 2005 and then further extended on the 17 November 2005. PCMC wrote that they had done their best to find a suitable date for delivery and to expedite the process as much as possible: but Mr Casella explained:-
"The best I can really do is to guarantee the checkout of the line in Italy five months later than the signature of the contract and down payment received".
According, if there was immediate signature of the contract PCMC could deliver at the end of April.
- On 17 November 2005 Gambini noted that :-
"The main target of LPC is to be able to start production of flat paper toilet rolls at the new site in March 2006"
They proposed to achieve that target by providing a low specification converting line part of which would subsequently be dismantled and replaced with higher specification equipment.
- On 14 November 2005 Perini noted internally that Mr Dharamshi:-
"… Still wants a fast delivery Sincro 6.5 or similar BRT Line or "I'll have to go to the competition"…any lines about to be defaulted on?...."
The response however was to confirm to Mr Dharamshi (in ignorance of the proposals that had been made to LPC by PCMC and Gambini) guaranteed delivery at the end of October 2006 and the end of November 2006. Confirmation in those terms was in fact given on 1 December 2005, the day after LPC had entered into the contracts 015 and 016 with PCMC. The contract with PCMC provided for later delivery than had been offered by Gambini but it provided superior technology from the outset and would not require partial replacement three months after installation.
- In fact no converting line was installed at Rothley Lodge in April 2006. LPC did not make any payments in accordance with contract 015 or contract 016. It was necessary to redesign the lines to fit them conveniently into Rothley Lodge (for Mr Dharamshi had not discussed layout plans with PCMC as he had with Perini), and the specifications were also altered. The converting line provided under contract 015 was not in fact delivered until July 2006 (and was not operational until October 2006). From this I draw two inferences.
- First, Mr Dharamshi did not regard delivery in April 2006 as absolutely critical. He was prepared to run the risk of delayed delivery by not making the stage payments when due. In fact PCMC commenced manufacture without any stage payments having been made, and they actually completed the contract 015 converting line in accordance with the contract. But that fact does not meet the point that LPC was prepared to run the risk that PCMC would "down tools" or allocate the modules to some other converting lines for a customer who had paid in accordance with his contract. Secondly, I infer that LPC was prepared to live with some delay to its scheduled commencement of production if that was what was required to obtain a machine that performed according to its expectations. That was the view that Mr Dharamshi took in April 2006 (when the machine as built produced a product of the wrong size and had to be modified accordingly). I think he would have ranked his priorities in the same way when contemplating his purchase options in November 2005.
Application of principles of causation and assessment
- So much for what happened in the real world. I must now apply the legal principles outlined above and (so far as necessary) enter the world of "what would have been".
- LPC's infringement was to use a process or method within claims 16 and 17 of Patent 929. PCMC is liable as joint tortfeasor for that infringement. Did the infringement cause any loss at all to Perini? In my judgment the infringement by use was embedded in the contracts which LPC and PCMC entered. But for their mutual agreement to use the infringing process, Perini would have had the market to itself for tailsealers embodying the invention. They could then deploy the advantages offered by the patented technology against the advantages of price and delivery times that their competitors held.
- Was the patented technology of any value in that competition? LPC and PCMC argued that the tail sealer as a module of the converting line was not at all important (in cost terms it represented about 6% of the total) and that the key feature of the converting line was the rewinder: that is why in evidence and argument the different converting lines have been called "the Time line" or the "Sincro line" or the "Sintesi Line" (being the reference in each case to the rewinder). Mr Dharamshi gave direct evidence that the key unit is the rewinder and that when he negotiated contract 015 and contract 016 with PCMC he focused particularly on the rewinder unit and did not really focus on the tail sealer unit. However honestly given, there must be some doubt about the reliability of this evidence: Mr Dharamshi is recollecting (encumbered with hindsight and in the context of litigation) the respective weight given to different factors in a decision taken six years earlier. It is plain that the tail sealer unit was relevant and material. In order to produce a balanced production line, the model of tail sealer is identified and its mode of operation is specified in the contract between LPC and PCMC. It would also have been specified if a contract had been entered with Gambini (whose tail-sealer was also of an advanced design). The nature of the tail sealer was one of the factors that caused the agreement to be made.
- Then LPC argued that even if the tail sealer as a unit was of some significance yet the way it actually worked was not: the technology was unimportant and could not be causative of any choice. I disagree. The fact is that LPC chose PCMC's infringing method over Gambini's apparently non-infringing method, and went to the trouble of making it a contractual term that the infringing method be used. Mr Casella (the Senior Vice President of PCMC) described the patented method as "the novelty in the market" and "more elegant than a spray tail sealer", a nozzle-based tail sealer being "less competitive". That is why it was a factor in the choice.
- Was the patented method of no significance when compared with delivery times? LPC and PCMC argued that the cause of PCMC winning the contracts was not the technology embodied in the tail sealer but the delivery times which PCMC was able to offer. I shall shortly explain why, in my judgment, the question of delivery time was, although undoubtedly a significant factor, not as rigid as is now presented. But to ask whether it was the delivery times that caused PCMC to get the contract is in my judgment to apply the wrong focus. The real question is not why PCMC got the contract. The real question is whether the decision of LPC to use an infringing method provided by PCMC and to embody it in the contract caused loss to Perini. If the PCMC option had not been in the market would Perini still have lost the contract? If LPC wanted to use the patented technology then quick delivery was not an option lawfully on the market; so to say that it was quick delivery that actually won the day does not answer the right question.
- Then LPC and PCMC argued that the technology embodied in the Original Rotoseal could easily have been rendered non-infringing and that, indeed, there was at the time already in operation a Modified Rotoseal. Thus it is argued that they could have reached an agreement for the provision of a converting line which did not utilise an infringing tail sealer. In my judgment this is not material to the question what loss arose from the fact (a) that they did actually agree upon the provision of a converting line, and (b) actually did incorporate an infringing tail sealer. The question is yet again: did the agreement between LPC and PCMC to use the patented method in the tail sealer to be installed in the converting line cause a loss to Perini? The fact that LPC and PCMC could have made a different agreement is of no assistance in answering that question; any more than it was relevant in the United Horse Shoe Case [1888] 5RPC 260 where Lord Halsbury said at p264:-
"I think it is nothing to the purpose to show, if it is shown, that the [Defendants] might have made nails equally good, and equally cheap, without infringing the [Claimants'] patent at all. I will assume that to be proved, but if one assumes that the nails, which were…made by the pirated machines injured the [Claimants] sales, what does it matter if it is ever so much established that the loss which the [Claimants] have sustained by the unlawful act of [the Defendants] might also have been sustained by them under such circumstances as would give [the Claimants] no right of action?"
- Reminding myself that the legal burden of establishing that the loss claimed was caused by the infringement by LPC for which PCMC is liable as joint tortfeasor, I hold that that burden has been discharged. The cause or connection is established by the fact that the contract upon which LPC and PCMC entered specified the infringing use. Although LPC and PCMC had introduced evidence to throw doubt upon the normal inference that would be drawn that their agreement to use the infringing use caused loss to Perini by depriving Perini of its monopoly in the market place for the patented technology, considering the evidence as a whole (and endeavouring to follow the approach I indicated in paragraph 68 above) I consider loss was caused. On the balance of probabilities, the patented technology was not an irrelevance when purchasing choices were being made, and was a cause (if not the dominant cause) of the purchasing decision.
- Causation questions (like assessment questions) have to be approached in a commercially realistic and common sense way and with the ultimate object of yielding compensation that is fair (but no more than fair) for the wrong suffered. That is true whether one is considering causation in fact or causation in law. Looking at what (if any) loss was caused by the infringement, I hold that in this case the loss caused to Perini was the loss of the chance of securing the LPC contract. The loss of the chance of deploying the monopoly of profit and advantage that it was the object of the 929 Patent to grant is in these circumstances in itself compensatable loss. In the world of (what would have been) Perini was not the sole company offering converting lines to LPC, and LPC would not have been compelled to accept what Perini offered. "What would have been" depends on the hypothetical actions of LPC, or Perini and of Gambini. I will follow the approach taken in Gerber [1997] RPC 443.
Assessment: the nature of the chance
- I must now identify the nature of the chance that was lost before attempting to fix the size of the chance.
- The first point is whether the chance that was lost was a chance to supply a Perini tail sealer or chance to supply a converting line containing a Perini tail sealer. This raises the question of what are called "convoyed goods": or as Mr Watson QC picturesquely put it, "the question of the tin whistle on the battleship". If the shipyard unlawfully equips the battleship with a tin whistle that infringes the whistle-maker's patent, is the whistle-maker entitled to assess his damages by reference to the costs of the battleship?
- The question of principle which lies at the heart of this issue is whether damages for infringement of a patent are limited to the profits that would have been earned in activities for which the patent provides a monopoly. It is, I think, a question of remoteness of damage: what is the extent of the loss for which the defendant ought fairly or justly or reasonably to be held liable? (See Kuwait Airways Corp v Iraqi Airways [2002] UKHL 19 at paragraph [70] per Lord Nicholls).
- As was pointed out by Staughton LJ in Gerber [1997] RPC 443 at 451 there is no such limitation in the Patents Act 1977. He observed (at p 453):-
"…at first impression the Patents Act is aimed at protecting patentees from commercial loss resulting from the wrongful infringement of their rights. That is only a slight gloss upon the wording of the statute itself. In my judgment, again as a matter of first impression, it does not distinguish between profits on the sale of patented articles and profit on the sale of convoyed goods".
He went on to hold that the authorities did not impose any such restriction. He drew particularly upon Meters Limited v Metropolitan Gas Meters Limited (1910) 27 RPC 721 and (1911) 28 RPC 157. There is a helpful summary of the Meters case by Jacob J at first instance in Gerber [1995] RPC 383 at 397 in these terms:-
"There were two patents claiming mechanisms which could be included in a gas meter… there was … a claim for a meter incorporating the inventive devices. Damages were awarded on the basis of lost profits on the whole meters. The argument that damages should be limited to lost sales of the clever bit of the meters was rejected by Eve J who awarded damages on the basis of lost profits on whole meters. The Court of Appeal upheld Eve J. I can find no part of the reasoning of either Eve J or of the Court of Appeal which turned on the scope of the claim. Both Courts looked at the question of commercial substance… the damages did not turn on legal niceties, they turned on commercial considerations".
- I hold that there is no reason in principle why the chance which must be assessed is the chance simply to supply the patented tail sealer rather than the chance to supply the whole converting line.
- Looking at the matter as one of commercial substance I hold that the chance that was lost was the chance to supply a whole converting line. The evidence establishes that on the balance of probabilities when seeking complete new lines for BRT or HHT, LPC purchased the entire line from a single manufacturer. I am also satisfied that (unless circumstances dictated the insertion in the converting line of modules that were already owned) the general practice in the market was to purchase whole lines and not to assemble individually purchased modules.
- PCMC and LPC sought to establish that no potential purchaser was compelled to adopt this approach. It would be technically possible to insert a Perini 560 tail sealer into a PCMC Sintesi 65 line by adjusting the output height of the PCMC rewinder to the input height of the Perini tail sealer. It would be possible to synchronise their operating speeds. It might even be possible to standardise their operating software. It would be possible to adjust the output height of the tail sealer to the input of the logsaw accumulator. It would be possible to reconfigure the machinery around a common centreline. I do not doubt that this is so. But I regard it as very unlikely that a potential purchaser with a free hand would choose to go down that road, with its added complications and operational risks (with each module supplier blaming the other for any want of performance in the overall line). I accordingly find that as a matter of commercial reality Perini has lost the chance to supply a whole converting line (not simply a free standing tail sealer).
- The next issue that arose is whether Perini would have sold a high specification Time Line or a low specification Sincro Line. In its dealings with Perini, LPC had originally sought quotations for two high specification lines for Rothley Lodge incorporating the Time Technology, and the May 2005 "agreement in principle" was for such lines. When Mr Dharamshi sought the quotation for "the seventh line" this, too, was for a high specification Time Line incorporating two "flying spice" unwinders and an embosser. When Mr Dharamshi sought further quotations in October 2005 he sought quotations for a Sincro 6.5 line and a Sincro 5.5 line. These operated at lower speeds. What LPC actually installed was PCMC's Sintesi 65 and Sintesi 55 lines (exactly comparable to the Perini October 2005 quotation).
- Perini argues that if LPC had been buying from them then LPC would have taken full advantage of its available technology. They point to the quotations that were originally obtained. They point to some layout drawings that were prepared by the manufacturer of the packaging lines which appeared to show that in June 2005 LPC was intending to install two new Time lines; and that the installation of Time lines continued to be a feature of the plans until March 2006 at which point a total of four Time lines is shown as being installed in Rothley Lodge. So Perini says that on the basis of the plans it would have installed the two original Time lines, "the seventh line" to Time specification and the additional line which Mr Dharamshi decided should be installed to assess in the phasing of production (also to Time specification). So if one asks what Perini lost when LPC and PCMC agreed to install two Sintesi lines incorporating the infringing tail sealer, the answer is "two Time lines".
- Mr Dharamshi's evidence is that he did intend to install two high specification lines for appropriate products (and indeed he did eventually place orders for such lines). But as to the remaining two lines ("the seventh line" and the additional phasing line) he eventually decided that he wanted a lower specification line, because he was simply going to make standard BRT. This used relatively low grade paper which could not be processed at high speed. He considered that an operational speed of 25 logs per minute was appropriate, and for that one did not need the expensive Time technology. This is what he did buy from PCMC. Mr Allen of Perini realistically accepted that if that was the customer's requirement then he would not be able to sell anything more expensive and more complicated.
- Perini therefore invited me to disbelieve Mr Dharamshi both as to his commercial intention and as to the reasons for his purchase of the PCMC Sintesi lines. They invited me to hold that the October quotations were cynically sought comparators and did not indicate any genuine consideration of the lower grade technology. Perini invited me to find that Mr Dharamshi did not give credible evidence because such was the increase in productivity through using the Time technology and such was the longevity of the machinery that any reasonable man of business would opt for the more expensive machinery knowing that it had a short "payback" period and provided great product flexibility for up to 20 years.
- I find that at the end of 2005 the only lines which Mr Dharamshi was contemplating purchasing were lines to produce standard BRT with relatively low grade paper; that this production did not require (and probably could not accommodate) production at anything more than 500m/25 logs per minute; and that he would not have paid for expensive technology that he did not need. Accordingly the chance lost was the chance to supply a Sincro 65 and Sincro 55 to the same specification as actually provided in the Sintesi 65 and Sintesi 55 lines provided by PCMC.
- The next question I was required to determine was whether Perini would also have obtained the sales of additional equipment; and also after sales services such as servicing, maintenance, spare parts, consumables and upgrades ("aftersales"). So far as additional equipment is concerned the world of "what would have been" is assisted by what actually happened. After placing these orders with PCMC Mr Dharamshi later added an extra unwinder and an embosser. (After I circulated the judgment in draft the Claimants asserted that as part of the original project PCMC also supplied 2 corewinders and 4 flying splice unwinders for the corewinders. Because the Claimants focussed in closing on an argument that Perini would have sold a Time line this is not an issue that emerged for decision. I have not decided it: it remains for decision at the resumed hearing). Clearly, whoever supplied the lines was likely get the contract for these extra modules. LPC submits that these additional items are too remote from the infringement to be recoverable as a matter of law.
- I reject that argument. In my judgment it was reasonably foreseeable at the time of contracts 015 and 016 that the configuration of the lines might alter. PCMC signed the contracts on 30 November 2005 and the enquiry about the additional machinery had been made at the latest by 8 December 2005. On any sensible view this was all part of the same project. I therefore find that these extra modules form part of the converting line that Perini would have had a chance of selling.
- I find that whoever supplied the converting lines would also have provided the aftersales. This was the effect of the evidence of Mr Signorini, and was acknowledged to be so in the evidence of Mr Housley and Mr Casella. Accordingly these aftersales are ancillary to the contract the chance of which Perini lost. (After I circulated this judgment in draft LPC and PCMC asked me to alter this paragraph because they asserted it was common ground at trial that the original supplier would not capture all aftersales. My judgment is expressed in considered terms. I have made no finding what aftersales would have been made. This has yet to be determined (as I hope is clear from paragraph 166). The Defendants addressed aftersales in their closing submissions in this way: "Given the accountants have not given evidence on it, we do not deal with this issue". Nor have I, except in principle as I was asked to do. So my judgment stands as originally expressed).
Assessment: the value of the contract
- Having now identified the nature of the chance lost I must turn to quantification. The first step is to value the notional contracts; the second step is to evaluate the chance that such contract would have been obtained. My task is to make a fair assessment without pretending to achieve unattainable precision. I bear in mind the observation of Lord Wilberforce in the General Tire Case [1976] RPC 197 at p.212 that:-
"The defendants being wrongdoers, damages should be liberally assessed but … the object is to compensate the plaintiffs and not to punish the defendants."
- I have found that the chance that Perini lost was the chance to supply a Sincro 65 and a Sincro 55 line in accordance with its October 2005 quotation, together with the additional equipment which LPC ordered from PCMC subsequently, together with the benefit of after sales. I cannot at present value the after sales (being the subject of expert evidence which I have not considered at this stage). I therefore address the contract price which Perini would have achieved.
- The evidence establishes that in the converting lines market, suppliers originally quote an offer price and then engage in negotiation for the entire package. Mr Allen of Perini based his evidence "on the basis of traditional negotiating patterns with LPC". The general discount he allowed was 25%, and he relied on the quotation given in April 2005 for "the seventh line". This evidence, however, overlooks the terms of the "in principle" agreement reached in his email of the 13 May 2005 which offered a 40% discount on all orders placed before 31 December 2007 and confirmed that any eventual cancellation of any lines would not change the acceptance of the agreement as a final and complete solution for the previous dispute over the Sincro XXL. The terms of the October 2005 quotation in fact recognised this to be so, acknowledging that "we have an agreement that the actual prices to LPC will be very special according to the option LPC [chose] back in May 2005". Mr Allen was constrained to acknowledge in cross-examination that although he might try to offer a lesser discount than 40% there was no realistic prospect of doing so. He eventually accepted Counsel's proposition that (ignoring additional equipment subsequently supplied) the quoted price (allowing for deductions) would have been €1.776 million for each line. But this does not fairly reflect his real evidence because Counsel's proposition contained an innocent mistake. The lines were not the same. One was a Sincro 65 and the other was a Sincro 55. It is convenient to use the October 2005 quotation (because this also takes account of the embossers). The total for the two lines including the embosser would have been €3.824 million.
- It is the profit on that package (plus the profit on after sales) that establishes the maximum of Perini's loss on the LPC contracts.
Assessment: is the chance too small to value?
- It is now necessary to evaluate the chance that Perini would have obtained such contracts and earned such profits. But the first question is whether such a chance must be dismissed as speculative or is to be regarded as substantial (and so capable of evaluation). It is here that questions of causation and questions of assessment overlap. In essence, PCMC's position was that the reason it got the contract (and the reason why Perini stood no substantial chance of getting the contracts) was that Mr Dharamshi had a requirement for delivery in April 2006 which Perini simply could not achieve. I must decide what the position was in November 2005 (when LPC and PCMC entered upon their common design to employ the infringing use). At this stage Mr Dharamshi had identified April 2006 as the probable completion date for Rothley Lodge and the evidence establishes that in the course of his negotiation he was looking for delivery of one converting line at about that time, with a second line to be installed at a later stage. If LPC and PCMC had not entered contract 015 and 016 what chance would Perini have had of providing the delivery date that was acceptable to Mr Dharamshi in the light of what else was available in the market?
- In my judgment they had a substantial chance. Although with the benefit of hindsight and exposed to a claim for damages Mr Dharamshi thinks that April delivery was critical, I consider that in November 2005 there was a degree of flexibility. Although he signed the contract for delivery five months from the first stage payment Mr Dharamshi did not "nail down" delivery in April 2006 by making that first payment. He delayed until January which (as he acknowledged) meant that PCMC could (had it chosen so to do) delay delivery until mid June 2006. He ran the risk that PCMC might insist upon that. In fact the converting line was not available until July 2006 (and did not become operational until much later). There appear to be no contemporaneous complaints from LPC that a critical delivery deadline had been missed.
- On the other hand I do not consider that Perini's scheduled delivery date of October 2006 was immutable. Perini was aware of a potential difficulty with manufacturing lead times and appears to have formulated some plans to address that difficulty using manufacturing facilities in Brazil and sub-contractors. The evidence of Mr Allen in chief was that Perini would not normally allow delivery time to lead to the loss of a major contract, Perini initially quoting a delivery time that fitted its ideal manufacturing schedule, but in negotiation being prepared (if the delivery time threatened to become a "deal breaker") to adjust that schedule. I accept that evidence as to general policy and I find that three of the previous Sincro Lines provided by Perini to LPC had been provided on exactly that basis (as Mr Dharamshi would have known). The evidence of Mr Allen in cross-examination was that it was possible that if Perini had been told that its scheduled delivery date in October was not acceptable but that LPC was willing to commit to a contract and make the down payments then:-
"We would have had to get together in Perini and work out some way of improving those dates".
- It was the evidence of Mr Biondi of Perini that, whilst it was not normal, Perini could on a few occasions each year meet a delivery deadline of six months, particularly where the line was to a standard specification (in which case Perini could easily outsource the production of individual modules to suppliers who had produced the machines in between twelve and seventeen weeks). Outsourcing might then result in a bottleneck at the checkout stage but I accept Mr Biondi's evidence that between February and June 2006 there was sufficient capacity amongst the skilled personnel to checkout two Sincro lines for LPC. I consider it probable that Perini would have accelerated the production of any order placed by LPC. You do not offer a longstanding customer a 40% discount (to secure a relationship in which there had been an upset) and then make no effort to secure his business by adjusting your standard production schedule. It is in my view probable that Perini would have accelerated production to late June (or the beginning of July 2006). I accordingly find that there was a substantial chance which requires to be valued (rather than a speculative chance that may be ignored).
Assessment: the size of the chance
- The next step is to value that chance. The evidence of Mr Dharamshi suggested that the chance was very small. His primary position was that if he could not lawfully reach an agreement with PCMC about using Perini's patented method, then he would have reached an agreement with PCMC to purchase a line that used a non-infringing method (possibly the early version of the Modified Rotoseal that PCMC had already developed for one customer). Mr Dharamshi's secondary position is that he would have bought most of the line from PCMC and the tail sealer from Gambini. His third position was that he would have brought the entire converting line from Gambini. His fourth position is that he would have purchased a second hand line from a machinery dealer and that he is "confident that there would have been some machinery that [he] could have bought at short notice if necessary". But in no circumstances would he have gone back to Perini, to negotiate on the delivery date or put in writing to Mr Allen or anyone else at Perini that (although he had asked them to provide detailed layout plans for their machinery) the delivery date was turning into a "deal breaker".
- I doubt the usefulness of this evidence. The witness is obviously being asked at a late date and in an artificial context to think what he might have done in circumstances he never actually faced and which are, in fact, dependant upon the responses of third parties. It is perhaps best demonstrated by the complete absence from Mr Dharamshi's hypothetical action plan of any further contact with LPC's favoured machinery supplier who (experience had three times proved) was capable of delivering outside the normal delivery schedule and who was offering a 40% discount on market leading machinery.
- In my judgment the following factors enter into the assessment of the chance:-
i) In late 2004 Perini had a 70% share of the market for BRT and HHT machinery.
ii) During 2005 that market share came under attack from Futura (in relation to higher end machinery) and Gambini (in relation to mid-level machinery) to the extent that PCMC was considered the third choice for BRT and HHT rewinders (after Perini and Futura).
iii) Perini responded to this market pressure by reduction of its margins (rather than by abandonment of market share) and was seeking to restore its margins by making its products more technologically advanced.
iv) In LPC's case, technological advance which enhanced production speed would never be particularly significant because its immediate demand was for a basic converting line; but technological advance that supported reliability of production would have been attractive. Perini's patented method of tail sealing provided a significant advantage over nozzle- and brush-based systems.
v) Perini was offering LPC a 40% discount on market leading machinery incorporating the latest tail sealing technology.
vi) Futura did not represent serious competition for LPC's business because (a) in the UK it was a very new company without any track record (though with a sound European reputation); (b) it would have had to be the subject of further investigations by Mr Dharamshi; and (c) although it had quoted, it had never been successful in selling anything to LPC.
vii) Gambini did represent a serious competitive threat because (a) it had already supplied equipment to LPC; and (b) it used a wire-based tail sealing technology (the possibility that this might have also infringed Perini's patent being irrelevant for the purposes of this exercise since as a matter of fact the tail sealer was in the market).
viii) Gambini could only supply new equipment in July 2006 (offering prior to that to provide temporary second hand machinery).
ix) Perini's scheduled delivery time for the first line was October 2006 but it was prepared to depart from normal delivery times if delivery was presented as a "deal breaker", had a capacity to do so through its use of sub-contractors, and probably would have brought the date forward (if told that it was a "dealbreaker") to July 2006.
x) The evidence does not establish the actual existence of spare capacity in the critical period but it does establish the existence of arrangements.
xi) LPC had a preference for Perini machinery and had obtained from Perini detailed specifications for the siting of the machinery in Rothley Lodge (which it had not obtained from PCMC or, so far as the evidence shows, from Gambini).
xii) If delayed delivery was a real problem, Mr Dharamshi was prepared to consider other options such as using second hand equipment until new machinery could be built and delivered and brought into production.
- Balancing these competing considerations I put the chance of Perini's successfully obtaining the contracts at 65%.
Georgia-Pacific: the facts
- I turn to consider the Georgia-Pacific contract. There was a long history of trading between Perini and Georgia-Pacific. Perini was the preferred supplier. But sometimes Perini lost out on price for comparable equipment. In December 2004 Mr Riegert (the person at Georgia-Pacific responsible for capital procurement) informed Perini that early in 2005 Georgia-Pacific would be finalising proposals to purchase a new line for their Bridgend facility that would require quick delivery. Mr Riegert indicated that Georgia-Pacific wished to install Perini equipment but that "the price difference [was] great and [Perini] will need to sharpen [their] pencils". He was told by Perini that the best way forward would be for him to state the specification and price that he needed, that Perini would trust him and would seek to get as close to it as possible. I find that that was the basis on which the negotiations were conducted.
- Georgia-Pacific had seen demonstrations of PCMC and Futura converting lines. These demonstrations did not lead to the placing of an order with either of them and the matter was left in abeyance until August 2005 because of a lull in demand. Then, prompted by a possible production difficulty during a summer product promotion, Georgia-Pacific made an inquiry of Perini as to the delivery time for a new converting line for Bridgend (line 17) and was told that if the order were placed in September 2005 delivery would be in July 2006, but if the order were only placed in October 2005 delivery would be at the end of September 2006. (This is consistent with the manufacturing schedule that was being indicated to LPC). If the next summer's peak demand was to be satisfied, Georgia-Pacific would have to place an immediate converting line order.
- But a bespoke line was not the only option. By August 2005 Perini had built a speculative line ready for demonstrations in the autumn of 2005. This was a very high specification Time line suitable for high speed production of HHT. Perini offered elements of this speculative line to Georgia-Pacific as an alternative.
- Mr Housley and/or Mr Riegert gave Perini to understand that the required price for the new plant was US$2.5 million for a line excluding a log saw and a core winder (which Georgia-Pacific already had spare). The "marked-up" price for the elements of the speculative line that would be required by Georgia-Pacific was €3.175 million: this is what Perini would have told a customer the line was "worth". That was equivalent to US$3.82 million. If a conventional 25% discount was applied to that the price would be US$2.86 million, still over the target price.
- The choice which faced Mr Riegert was to take the "off the peg" speculative line in early 2006 or to wait for a bespoke line to be delivered in September or October 2006. The view he communicated to Perini was that he would not base any decision on delivery times because he did not want to make a mistake by buying the wrong technology for the sake of a quick delivery. That indicated that he would not be put off at having to wait until October 2006; but equally that he would not jump at the chance of the speculative line simply because it could be delivered in early 2006. I regard this as canny negotiating rather than as indicating that in truth timescale was not important.
- On the 20 October 2005, and in response to an offer of early delivery of the speculative line, Mr Housley's superior (Mr Jones) sent an email to Mr Allen of Perini (copied to the Vice President of the European board of Georgia-Pacific) in these terms:-
"We are very interested in the line items mentioned in your e-mail and we are intent on seeking the appropriate approvals. Before we can place a down payment however we have to undertake a number of tasks. (a) Have a meaningful negotiation with Perini and [Mr Riegert] will be in touch with you shortly in this respect: (b) Submit… capital approval documentation… and achieve European sign off. I am confident that we will be able to achieve the above…"
Perini had in fact been in contact with Mr Riegert and (according to their documents) he had said that Georgia-Pacific had every intention to purchase the speculative line and that there was no need to be strict about requiring Georgia-Pacific to make a down payment of a refundable deposit.
- However, at the same time as these statements were being made to Perini Georgia-Pacific was pursuing an alternative quotation with PCMC. Georgia-Pacific had originally shown some interest in purchasing PCMC's latest technology offering (the Maxim) which was somewhat similar to Perini's Time line. But the quotation it actually sought was for a Sintesi converting line which incorporated an Original Rotoseal tail sealer. This was because a lower specification line would meet the immediate need for a facility to produce BRT for a supermarket own brand label. The lowest specification line (producing BRT at 25 logs per minute) was priced at €1.58 million ex works (prior to negotiation).
- Mr Jones, Mr Riegert and Mr Housley were armed with PCMC's quotation when they attended a meeting with Perini on the 31 October 2005. Perini's "marked up" price for the speculative line was €3.175 million. With the omission of a core winder and a log saw and after negotiation Perini reduced its quotation to €2.397 million (about US$2.85 million). Now armed with PCMC's quotation of €1.58 million for a low specification line Georgia-Pacific offered €1.6 million for Perini's high specification speculative line.
- Georgia-Pacific then used Perini's available delivery date of March 2006 as a lever against PCMC. Georgia-Pacific thereby secured from PCMC an upgraded Sintesi 65 line, (the equivalent of a Sincro 65 and so inferior to the Time technology incorporated in the speculative line) at in excess of a 30% discount, bringing the total installed offer price to €1.4 million. (After placing its order with PCMC, Georgia-Pacific upgraded certain aspects of the line so that its ultimate price was €1.532 million).
- Armed with that reduced quotation on 16 November 2005 Georgia-Pacific offered Perini €1.4 million for its speculative line. Perini responded by further discounting the price of its speculative Time line to €2.157 million. This is slightly more than $2.5 million. Perini did not regard a bid of €1.4 million for its speculative line as serious and made no further effort to bridge the gap. As Mr Manrico of Perini explained to Mr Riegart:-
"What you are asking for is a discount level which we have never conceded, not even when the purchase volume was five times the present one."
- On the following day Mr Riegert rejected that counter proposal and (according to Perini's records) explained that Perini had lost the order to PCMC "due to the customer's restricted budget". Perini's telephone attendance note records:-
"He was apologetic, saying that their budget restraint made them buy a line which was not the one they wanted i.e the Time 700. But he understood that we have already made a great effort and that we could not reduce the price further. Other options were either not interesting (the Sincro 5 or similar) or too long for the lead time".
- It is difficult to accept Mr Riegert's explanation at face value. First, to compare the price of the PCMC equipment and the price of the Perini equipment is not to compare like with like. The PCMC equipment was last generation technology whereas the Perini equipment was present generation technology (to put the matter shortly). Second, the negotiations for the supply of the converting line to Georgia-Pacific by Perini were being conducted on the footing that Mr Riegert would, on an honourable basis, state the price which Perini had to achieve and Perini would then seek to match that price; Mr Riegert had named a price of US$2.5 million to Perini and Perini had all but matched that price. He only reduced the "target" after PCMC had quoted.
- An explanation was given by Mr Housley in oral evidence. It is that there was a misunderstanding about the budget of US$2.5 million. He explained that this budget was an internal budget for the entire project cost, not an external procurement budget. So it included the cost of two cranes; the construction of toilets, locker rooms and facilities; the relocation of offices; the construction of foundations for the machinery to be supplied; the purchase of conveyor systems; the internal recharge of engineers' time in preparing design drawings; and a 5% contingency. This was not supported by any documentary evidence and he gave every appearance of difficulty in the witness box of attributing a cost to these additions; but he eventually settled on the figure of about £430,000.00 (which he amended the following day to €400,000).
- I accept that the budget was for the project. I find that Mr Riegert did say (in the context of being invited to state the price that Perini had to achieve) that the budget was US$2.5 million. He could have had no interest in substantially overstating the budget that was available to him. I find that he probably took that course either because modest ancillary project costs could be characterised as something other than capital expenditure (in which connection, in fact, part of the equipment purchased from PCMC was characterised as "spares" rather than capital equipment); or because he thought that the modest ancillary expenditure could be used to reduce the target price in the course of negotiation.
- I do not accept that the budget had to accommodate ancillary works of the order of €400,000. Mr Housley was evidently in difficulty in substantiating his recollection: indeed he admitted that he did not have actual figures in his head at the time and had only thought about the figures since. Mr Allen costed the ancillary works at about €60,000: but since in general his evidence tended towards optimism (in favour of Perini) I would put the ancillary works included in the budget at €100,000.
- These findings of fact constitute the basic narrative. I must now decide the specific issues arising on the inquiry.
Application of causation and assessment principles to the claim relating to Georgia-Pacific: liability of PCMC
- In purchasing, installing and using the converting line Georgia-Pacific would have infringed Patent 929 because the operation of the Original Rotoseal involved using the method protected by claims 16 and 17. (PCMC submits that Perini have only claimed that Georgia-Pacific "used" the method during installation and commissioning but I reject that argument, having regard to the terms of paragraph 10(D)(a) of the Amended Particulars of Claim which plead use in installation as a particular example of wider use).
- The agreement between Georgia-Pacific and PCMC required PCMC to supply an Original Rotoseal. The supply of a machine which used the infringing method was a specific term of the agreement and a recitation of the infringing method was part of the pre-contractual product description which PCMC supplied to Georgia-Pacific. The contract also provided that PCMC install that equipment, check it mechanically, commission it and start it up and also provide the necessary skilled labour. The position is not materially different from that which obtained between PCMC and LPC and which was the subject of analysis and decision by Floyd J and the Court of Appeal in the main proceedings. I hold that there was a common design between PCMC and Georgia-Pacific which makes PCMC liable as joint tortfeasor for Georgia-Pacific's infringing use.
Causation and loss
- The invention was an elegant solution to a known problem and conferred a competitive advantage. The infringing use was embedded in the contract between Georgia-Pacific and PCMC. I find that it was a factor (though not the dominant factor) in the selection of the Sintesi converting line. My approach is that set out above in relation to LPC.
- I find that, but for the mutual agreement of PCMC and Georgia-Pacific to use the infringing process, Perini would have had the market to itself for tail-sealers embodying the invention. Perini lost its advantage and was deprived of its monopoly because of the agreement of PCMC and Georgia-Pacific to use the infringing process. I hold that the loss caused to Perini was the loss of the chance of securing the Georgia-Pacific contract. My analysis is set out above in relation to LPC.
The nature of the chance
- I must now enter the world of "what would have been". Perini was not the sole company offering converting lines to Georgia-Pacific. In the market Perini had the advantage of market leading technology, a secure reputation and an established relationship with Georgia-Pacific. The disadvantages it faced were price and the manufacturing lead times for a bespoke converting line.
- I find that, save for the log saw and the core-winder (which it already owned), Georgia-Pacific would have bought the entire converting line from a single supplier. Its preferred supplier was Perini, by whose advanced technology it was attracted. What chance did Perini of obtaining that contract?
- I find that the chance was more than speculative and falls to be assessed (rather than being so slight that I should approach the assessment of damage on the royalty basis). Mr Housley confirmed in cross-examination that there was a clear intention to purchase a converting line (provided that the capital and operational costs could be justified within the tight margins which the supermarket imposed and the internal rate of return that company policy demanded), and that the preferred choice would have been to get a Time line from Perini. Negotiations were opened with Perini before anybody else and were continued precisely because Georgia-Pacific thought that there was a real chance of doing a deal with Perini at the meeting on 31 October 2005 and thereafter.
The value of the chance
- I must now approach the evaluation of that chance. The only contract that Perini says it would have won is a contract for the sale of the speculative line. It was not suggested that if PCMC and Georgia-Pacific had not made their agreement then Perini would probably have sold a lower specification Sincro 65 line and Mr Housley's statement that Perini could not make and supply a new tailored line for the delivery time that Georgia-Pacific required was not challenged. I find that it was a case of the speculative line or nothing.
- I must therefore examine on what terms the speculative line would have been offered. Even in the face of a proposal from Georgia-Pacific to pay €1.6 million Perini's lowest stated price for the speculative line was €2.157 million. There is no evidence from Perini that it was prepared to reduce this to a specific lower figure. There is no material upon which I can properly ground an inference of a reduction to any particular level. There is only
i) general evidence that Perini was prepared to discount its "marked-up" price by about 25%;
ii) the evidence of Mr Allen (which I approach with the same caution that I approach other evidence of this type) that if the PCMC deal had not been sealed then Perini "would have negotiated";
iii) evidence in e-mails that when pricing for Georgia-Pacific Perini was prepared to allow a further discount to meet the target price of US$2.5 million;
iv) evidence that Perini would not go anywhere near the reduced target price of Georgia-Pacific because it represented a discount rate that had never been given.
- There is no evidence that Perini was desperate to sell the speculative line or that Georgia-Pacific was the only possible taker. There is no reason to think that Perini would have gone significantly beyond the discount arrangements I have noted in the preceding paragraph simply to get rid of the speculative line.
- The question therefore is: of what chance of selling the speculative line for US$2.5 million (subject to minor tweaking) was Perini deprived by the agreement of PCMC and Georgia-Pacific?
- The following factors are material:-
i) Perini was the market leader with new and attractive machinery.
ii) Perini was undoubtedly Georgia-Pacific's preferred supplier.
iii) After trying the products of PCMC and Futura, Georgia-Pacific opened negotiations with Perini.
iv) Perini could not offer exactly what Georgia-Pacific specifically required because of its long manufacturing lead times: it had therefore to persuade Georgia-Pacific to take a line that was over-specified for its current requirements by persuading it of the advantage of future flexibility.
v) Georgia-Pacific's current requirement was for a production facility for a low margin BRT contract. Capital cost was therefore always going to be an issue (because of the policy on internal rates of return). Keeping within the budget (and by a margin) would have been very attractive. Exceeding the budget (even by a small margin) for the sake of future flexibility would have been very unattractive.
vi) Georgia-Pacific had an internal budget for the project of US$2.5 million (€2.1 million) which had to cover ancillary costs of €100,000. It therefore had only €2 million as a maximum sum available for capital procurement (unless it could recharacterise some of the expenditure).
vii) There is no reason to think that Georgia-Pacific would have gone beyond the magic figure of US$2.5 million as the project cost (the equivalent of €2.1 million) despite Mr Allen's hope that they might "stretch the budget". €2 million was the practical limit.
viii) Georgia-Pacific nonetheless liked the Time technology because of the control it afforded (which might be of value in dealing with its new two ply product).
ix) Although Perini was preferred and Georgia-Pacific did not want to purchase a line from Futura the cold fact was that if Perini did not "sharpen their pencils" Georgia-Pacific would consider them as a supplier and (as M. Giusfredi of Perini recognised in an internal report of 22 December 2004) it was really a question of how far down Futura was willing to go and how much of a risk Georgia-Pacific was willing to take on a new supplier.
x) The fact that in the real world Georgia-Pacific did not negotiate with Futura (because they accepted a satisfactory proposal from PCMC) does not mean that in "the world of what would have been" there would have been no negotiations with Futura.
xi) Georgia-Pacific did not have to take any risk. If the project could not be justified it did not have to be undertaken. Georgia-Pacific was not bound to increase the low margin work it did for supermarkets.
- Because a sale would have enabled Futura to break into the market (and because Georgia-Pacific's standing enabled it to command competitive quotes) Futura would ultimately have quoted a price of approximately €1.45 million for the equivalent of a Sintesi 65/Sincro 65 (being 15% lower than the price of €1.72 million that Mr Allen says in his Third Witness statement he would have quoted for a Sincro 65 line – assuming of course that lead times would have permitted such a quote).
- Mr Allen was of opinion that a sale of the speculative line to Georgia-Pacific was a "near certainty". I disagree. Balancing these competing considerations it seems to me that, on the evidence adduced, the factors that would have inclined Georgia-Pacific to keep strictly within its project budget and to seek the lowest price to meet its current requirement (or abandon the project) are much stronger than the factors that would have inclined Georgia-Pacific to imperil its budget. In the world of "what would have been" it would have been faced with a choice between (a) purchasing from a new and tested supplier offering old technology and (b) purchasing its preferred technology from its preferred supplier but at a price that would require it to recategorise some expenditure in order to keep within budget for a project that it wished (but was not compelled) to undertake. My estimation is that Perini had only a 25% chance of securing a sale of the speculative line to Georgia-Pacific at €2.157 million.
- Mr Allen gave evidence that he would have sold a sound cabinet as additional equipment. The actual context in which this evidence was given was Mr Allen's hypothetical sale of a Sincro 65 line to Georgia-Pacific. I am not satisfied on the evidence that such a sale would have been made on the hypothesis of a sale of the speculative line (as appeared to be suggested in closing). I find there would have been no sale of additional equipment.
- I find that if the speculative line had been sold there would have been aftersales (which remain to be assessed).
Conclusion
- I find and hold that PCMC and LPC must pay damages for infringement of Patent 929 being loss of profit calculated on the basis that Perini had a 65% chance of selling a Sincro 65 and a Sincro 55 to the specification quoted in the October 2005 quotations at a total price of €3.824 million. I further find and hold that (insofar as the additional embosser and unwind stand actually sold by PCMC to LPC are not included in the October 2005 quotations which I have priced) they must pay damages in respect of the profit that would have been made by those additional sales (but only 65%). They must also pay damages in respect of the lost profit on aftersales (but only 65%). I have endeavoured to wrestle with the accounting evidence served in November: but I cannot from that material make a fair assessment of what that profit is under any of those heads.
- I find and hold that PCMC must (as joint tortfeasor with Georgia-Pacific) pay damages for infringement of Patent 929 being loss of profit calculated on the basis that Perini had a 25% chance of selling the elements of the speculative line finally offered on 31 October 2005, and at a price of €2.157 million. They must also pay damages in respect of the lost profit on aftersales (but only 25%).
- After I had circulated my judgment in draft the Defendants asked me to alter the terms of paragraphs 166 and 167. Although not referred to in their closing submissions they wanted to advance the argument that it had been common ground at trial that if there was a loss of chance "x%" on an initial sale then there was a further loss of chance "y%" to be applied to aftersales so that the actual lost profits payable on aftersales would be "x% multiplied by y% multiplied by the total profits on aftersales over the lifetime of the line of equipment". The "y%" derives from the assertion that the chance of making aftersales decreases as the age of the equipment increases (and manufacturers' original spares become less important) so that the chance of selling spares diverges from the intial chance of selling the equipment. The terms of my judgment were considered: I had deliberately decided that my approach would produce a fair estimation of the loss whilst not striving for specious accuracy. Once a proper sum is assessed to represent lost profit on aftersales (and how that is to be done remains at large because the accountancy evidence has yet to be grappled with) then the sum so assessed is to be discounted by the percentage chance of making the initial sale. The Defendants' proposed double discount assumes that the starting point of the computation is the value of all aftersales over the whole life of the converting line. But I have made no such determination. My judgment stands as originally drawn.
- I believe I have addressed such of the many issues argued as is necessary to support my own conclusion, and to make the relevant findings if a different view of the law is taken. But I have deliberately not entered upon an examination of the legal and factual issues arising if it be concluded that the chance of Perini entering contracts with LPC or Georgia-Pacific was so speculative as not to warrant assessment, and that damages based upon a royalty fell to be assessed. I have taken the view that obiter statements would not be helpful. But I have the material for a supplemental judgment should the issues have to be decided.
- I do not expect the attendance of legal representatives when I hand down judgment. I will if requested make a declaratory order in the terms indicated so that the parties have at this stage an order against which either can appeal (and I will extend the time for appealing until the conclusion of the next hearing). I request the parties to fix a two day hearing so that I can address the accountancy evidence that emerged in the course of and subsequent to the trial: and also deal with what was referred to as "the Accrol issue";
- I would acknowledge the great assistance I received from the written and oral advocacy.
Mr Justice Norris.
