Case No: 0CL70062
Neutral Citation Number: [2011] EWPCC 016
IN THE PATENTS COUNTY COURT 
St. Dunstan’s House
133-137 Fetter Lane
London EC4A 1HD

Thursday, 5 May 2011

BEFORE:

HIS HONOUR JUDGE BIRSS QC

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BETWEEN:

LENRIC C21 LTD
Claimant
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TESCO STORES LTD
Defendant

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MR J TURNER (instructed by Taylors Solicitors) appeared on behalf of the Claimant
MR M CHACKSFIELD (instructed by Wedlake Bell) appeared on behalf of the Defendant

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Judgment
HIS HONOUR JUDGE BIRSS:

1.	Today was to be the opening of a trial about unregistered design rights.  The claimant is Lenric C21 Ltd, represented by Mr Jonathan Turner, instructed by Taylors Solicitors.  The claimant claimed that the defendant had infringed unregistered design right in a product called Bunny Warren.  The Bunny Warren is a length of plastic pipe sold as a play thing for rabbits.  The claimant of course accepts that bits of plastic tube are very standard, but submits that this particular item was the product of careful design work in order to meet the claimant’s requirements for being a suitable product for rabbits.  

2.	The defendant is Tesco Stores Ltd, represented by Mr Chacksfield, instructed by Wedlake Bell.  Tesco have sold an almost identical product under the name Fun Tunnel.  Until 21 April 2010 this case would have been a trial of an unregistered design right infringement claim.  The major issues in the case up until that point were the following four.  

3.	The first issue was subsistence of unregistered design right, this essentially was the question of whether the design was commonplace in the design field in question.  To be “not commonplace” is one of the requirements for unregistered design right protection.  

4.	Secondly the question of commissioning was a major issue since the design was in fact done by a gentleman in China by the name of Li Xin Bo.  The claimant’s case is that the design work was done pursuant to a commission from a UK based company (the claimant).  If the claimant’s case on the facts was right, then it would follow under the terms of the 1988 Copyright Designs and Patents Act that the design would qualify for protection and would be owned by the claimant.

5.	The third issue was copying.  The question was whether Tesco’s product was copied from the claimant’s product.  

6.	The fourth issue was Tesco’s knowledge or reason to believe.  The fourth point is important.  Tesco, of course, was nothing more than the seller of the product in question and as a result could not be a primary infringer of unregistered design right.  There was no question of Tesco copying the design and indeed, as one would expect in a case of this kind, the claimant quite properly made no such claim.  Tesco sold the product and the sale of a product in this context is only an infringing act if it is sold with knowledge or reason to believe that the goods sold are infringing goods.  That is secondary infringement.  Tesco’s case was that it had no such knowledge or reason to believe in any event.

7.	The action began in the spring of 2010.  By the autumn of 2010 Tesco had stopped selling the product and by November 2010 the claimant knew that Tesco had stopped selling the product.  The majority of the evidence in this case was exchanged in 2011.  The evidence showed that Tesco had a strong case that all its sales were innocent in the sense that, irrespective of any other issue in the case, Tesco could not be a secondary infringer.  It had no knowledge or reason to believe that there was an infringement in these circumstances.

8.	On 14 April of this year I heard an application by the claimant to adjourn the trial.  Essentially the claimant was seeking for the time to investigate a number of things, principally this question of innocence.  Notable at that stage was that part of the reason for adjourning the trial put forward by the claimant, or part of the justification for why it was a suitable case to be adjourned, was that because Tesco had stopped selling the product the case was now really about money only.  I refused the adjournment at that time for reasons I gave at the time.  

9.	On 21 April the claimant abandoned its claim for infringement.  In effect, it accepted Tesco’s case that none of the sales were made with the requisite knowledge or reason to believe.  In other words, Tesco have not committed any infringing act.  At that stage the claimant sought to amend its particulars of claim to drop the claim for infringement and substitute all its claims, essentially, for declarations that unregistered design rights subsisted and that the product Tesco had sold was indeed an infringing product, albeit that, because of the way in which secondary infringement is defined in the Act, Tesco had not committed an infringing act.  

10.	Tesco’s position was that the declarations were inappropriate.  It had no interest in the issue since in the circumstances it had stopped selling the product.  Yesterday the parties compromised all outstanding issues, subject to the question of costs.  In outline the compromise is that Tesco will contractually undertake not to sell the product for the duration of the unregistered design right.  There was a counterclaim for threats from Tesco against the claimant and on that counterclaim, the claimant will not issue threats to Tesco in respect of the past acts.  Of course, as Mr Turner rightly pointed out, that does not mean that if in the future for the sake of argument Tesco were to start committing infringing acts, the undertaking would prevent the claimant from writing to them about that.  The point is that this not supposed to happen because of the undertaking.  The other matter was that the claimant accepts that its threats were unjustified, in other words that Tesco have not been infringing on any view.  The parties could not agree about costs and asked the court to decide the costs.  

11.	The parties drew my attention to the notes in the White Book at pages 1266 – 1267 (2011 Ed).  Three particular points emerge from those notes.  First, on the authority of BCT Software Solutions v C Brewer & Sons [2003] EWCA CIV 9399, the textbook states that unless manifest injustice can be shown, the Court of Appeal will not disturb a costs order made by a judge at the invitation of parties after they have settled the action save for costs.  In all but straightforward cases, a judge is entitled to say to the parties that, if they have not reached an agreement on costs, they have not settled the dispute.  When the substantive issues have been compromised judges should be slow to embark on a determination of disputed facts solely in order to put themselves in the position to make a decision about the costs. 

12.	Also by reference to Arcadia Ventures v Longhurst 6th December 2000, unreported (a decision of Mr Etherton QC, as he then was, as a Deputy Judge in the High Court), where the subject matter of proceedings become academic during the course of proceedings, leaving the costs as the only issue, it is within the court’s discretion whether or not it should consider the substantive issue in deciding any order as to costs.  Unusual circumstances would have to exist before the court would consider an academic issue.  I should say that Arcadia is a case which is in the bundles before me, albeit for a different reason but I do have a copy of it.  Finally, the notes refer to Brawley v Marczynski [2002] EWCA CIV 756 which is said to stand for the proposition that there is no tradition that, when a dispute is not judicially resolved, the correct order is no order as to costs. 

13.	It is common ground between the parties that I should exercise the court’s usual discretion as to costs and both parties submit that the discretion is the same general discretion as the court always has, albeit I am exercising it in the particular circumstances that arise.  Since both parties wish me to do so, I will embark on the exercise on that basis.

14.	The general rule is set out in CPR part 44, rule 44.3.  It provides:

“If the court decides to make an order about costs, (a) the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party but (b) the court may make a different order.”

15.	Then CPR 44.3 (4) provides:

“In deciding what order (if any) to make about costs the court must have regard to all the circumstances including
(a) the conduct of all the parties, 
(b) whether a party has succeeded on part of its case, even if he has not been wholly successful and 
(c) any payment into court or admissible offer to settle made by a party which is drawn to the court’s attention and which is not a offer to which the cost consequences under Part 36 apply.”

16.	I should say that in relation to the points in r44.3(4), neither party has taken a point about the conduct of their opponents and I do not need to consider that factor before me.  
17.	The claimant’s submissions, in summary, are as follows.  The claimant submits that it won because Tesco has undertaken not to sell the product in future.  It says that that is what the case was about and so the court should approach this case on the basis that the claimant has succeeded.  Exclusivity was what this case was about and the claimant has achieved it.  Then the claimant says the court should make a small discount of something like 10 or 20 per cent for the fact that Tesco can be regarded as having succeeded on the issue of knowledge.  If not, in other words if the court was not of the view that the claimant had won, then Mr Turner submits that I should approach the matter on an issue by issue basis.

18.	On commonplace: the claimant submits that it would have won because the design field in question would have been a narrow one, that is to say pet products; and the product would not have been commonplace in that field.  Moreover, even if the design field had been a broad one, of pipes generally, although there were lots of pipes around there was no pipe exactly with the precise dimensions of this one and, therefore, this design was not commonplace even in the broad design field.

19.	On the commissioning: the claimant submits that it would have won on the facts, it points to an exchange of emails and of money which, it is submitted, amount to a commission within the requirements of the law.  On copying: the claimant submits it would have succeeded because the usual inference from the similarities plus the opportunity to copy would have carried the day.  Although Tesco’s evidence includes evidence of the source from which the company obtaining the Fun Tunnel, which was not the claimant, the claimant submits that it can show that there was in fact a link, albeit one unknown to Tesco, between Tesco’s source and the claimant.  Finally, on secondary infringement: the claimant accepts that it necessarily lost.  

20.	So the claimant won three out of four issues but lost on one issue.  So one should subtract one quarter (for the lost issue) from three quarters (for the successful issues) to give a half and on this basis Tesco should pay half the claimant’s costs.

21.	The defendant’s submissions are as follows.  First Tesco submits that it won.  Tesco says one must be careful to understand the undertaking it had offered.  It points out that the claimant abandoned its case for an injunction before the undertaking was offered.  No undertaking was sought at that point.  After all, Tesco had said it had stopped selling the product and made that clear.  It points out that at the hearing on 14 April it was said by the claimant that this case at that stage was all about money.  That was obviously on the basis that Tesco had indeed stopped selling the product.  Tesco says that the undertaking was offered to prove that it meant what it said, that Tesco had dropped the product.  It was a way of demonstrating that Tesco really did have no interest in the declarations which were being sought instead after 21 April.  

22.	It submits that the action of infringement has failed.  It also points out that the particulars of claim included claims for exemplary and flagrant damages, accusing Tesco of committing infringements in the cynical expectation that the claimant would be deterred from pursuing the claim by the cost of litigation and the disparity and size between the parties and the resources available to them to fight this litigation and that, on being challenged, the defendant misleadingly claimed that it had sourced infringing product before the claimant presented its product to the defendant.  Of course these claims for flagrancy and/or exemplary damages have all fallen away.

23.	Tesco also refers to two letters written without prejudice as to costs.  On 8 December a letter from Wedlake Bell included a detailed analysis of their position, both in law and commercially, and offered an undertaking to stop selling the product and a sum by way of £1,000 to cover both costs and damages.  In my judgment, that was in effect an offer for “no order” as to costs since by then there was no question that the parties’ costs each would have been of the order of £25,000 to £30,000.  Indeed the letter includes a calculation of damages, which was of a sum of about £1,000 or possibly more.  

24.	In January Wedlake Bell wrote a further letter in which the financial part of the offer was increased to £5,000.  So, says Tesco, it should get its costs after these offers, on any view, because it has effectively beaten them.  These costs would be roughly £80,000.  I should interpolate that both parties have provided estimates of their costs of these proceedings and they both come to almost exactly the same sum, which is of the order of £100,000 on each side.  

25.	Tesco also says that another way of looking at this case is to say that it should get its costs up to 21 April.  

26.	In any even, Tesco submits that if I am not of the view that it won then I should perform an issue by issue approach.  Tesco disagrees with the view of the merits as submitted by Mr Turner.  So on the question of commonplace, Tesco makes the point that it made an offer during the course of these proceedings to determine “commonplace” as a purely legal question: what is the design field?  If the design field was the narrow field of pet products then Tesco was prepared to accept that the design was not commonplace, but if it was broad then it submits that it was perfectly obvious that the design was commonplace.  On commissioning, Tesco submits that it would have prevailed on the facts.   Copying is not something that Mr Chacksfield addressed me on.  On secondary infringement, of course Tesco won.

27.	What to do?  In my judgment I should start with the general rule which I have mentioned already in CPR, rule 44.3, which is that the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party.  The claimant submits that it is the successful party because it obtained an undertaking not to sell the product from Tesco.  But in my judgment that is not the right way of looking at it.  I am struck by the fact that I was told in April that the case at that stage was about money only.  I remember that.  Mr Turner now says that exclusivity was important and was the only really important thing.  However in my judgment, with the greatest of respect to him, that is a valiant attempt to salvage something out of the position that he and his clients now find themselves in and is not in fact a fair way of looking at these proceedings.

28.	This actually was an infringement action, Tesco has not infringed and the action has failed.  On 21 April the real action failed.  Tesco had made it clear that it had no plans to sell in the future and in my judgment Tesco have been vindicated.  If I treat the undertaking which Tesco gave in order to get rid of the declarations in these circumstances as a victory for the claimant then, in my judgment, that would penalise the defendant for taking a practical approach of getting rid of what was, I must say, a rather unorthodox approach from the claimants seeking these declarations.  So, in my judgment, Tesco is the successful party. The starting point is that Tesco should recover its costs.  

29.	However, there are always other factors to take into account.  That is clear from rule 44.3 (4)(b).

30.	First of all, the letters.  I do not need to take the letters into account because having found that Tesco has succeeded, they cannot make the position any better.  The next question is the issues.  I need to take care in relation to considering the issues since I have not heard the trial.  However, both parties did urge me to take the issues into account if either of them was found to have lost.  

31.	I am troubled by the same concerns which struck Mr Etherton QC, as he then was, in Arcadia Ventures v Longhurst.  In that judgment Mr Etherton QC dealt with the question broadly as follows:

“In my judgment it is plain that, in considering what order to make as to costs, the court has jurisdiction to take into account, in the circumstances of the present case, the merits of the substantive relief.  In my judgment there is a lis before the court as to the question of costs.”

32.	He then says this:

“It will, however, in my judgment, be a very unusual set of circumstances in which, where proceedings are no longer relevant or are academic (whether this be on application for discontinuance or at the substantive hearing of the proceedings) the court will, in its discretion, be willing to consider the substantive merits of the claim.”

33.	He makes a number of further points, in particular for example the following one:

“In the first place it seems to me that I should be cautious about expressing any view on a substantive matter which no longer concerns the parties to the action but may be relevant at some future point of time to other parties who are successors in title.”

34.	Other matters are mentioned by Mr Etherton QC.  It is for these reasons, or some of them, that the notes in the White Book summarise the decision as providing that unusual circumstances would have to exist before the court would consider an academic issue.

35.	Should I take any account of the merits at all?  In my judgment, the particular circumstance that I have before me is that both parties have urged me to do so and have made detailed submissions on the issues, not particularly lengthy but detailed.  This hearing took approximately a morning, for a trial that was originally listed for four days.  In my judgment I should at least consider whether I can form a view on particular points in question.  

36.	First of all the questions of commonplace and commissioning.  In my judgment they are not issues on which I can form a clear view and I decline to do so.  Commonplace involves an issue of law and it would, in my judgment, be inappropriate to start trying to decide questions of law in the situation that I find myself in.  The commissioning issue involves detailed questions of fact.  Mr Chacksfield showed me things which might well have had an impact in cross examination of Mr Armstead.  Mr Armstead was the principal witness for the claimant.  I can quite see why Mr Chacksfield wished to make the points he made based on those documents but, in my judgment, again it would be inappropriate in the circumstances to start speculating as to what might have happened in cross examination.  Mr Turner quite properly made submissions to me based on the same documents and on the evidence of Mr Armstead and Mr Chung to support his case that a commission was indeed in place within the terms of the Act.  Neither issue, in my judgment, is suitable for consideration in the circumstances as they are now.

37.	On the questions of innocence, of course Tesco has succeeded, there is not doubt about that.  The question of copying is rather different.  On the material I have I do believe I can form a plain view.  The trial is likely to have ended with the conclusion that the product was indeed copied from the claimants’ product, they are virtually identical.  I should make it clear, however, that is not a finding that the product is an infringing copy.  It would only have been an infringing copy if indeed there was design right in the first place and that would involve the questions of commonplace and commissioning on which I have expressly declined to form any view.

38.	However, in my judgment, I should take into account that question of copying.  How does that affect the matter?  The parties both submitted that I should consider the impact of the issues on costs, since I have read into the case (which I have) and they rely on me to form a view as to the magnitude of the issues.  Copying is always important in an unregistered design right action.  A fair assessment, doing my best, which I will not pretend is anything other than a very, very rough and ready approach and having regard to the evidence to which I have looked at, is to deduct 20 per cent in relation to the question of the copying.  

39.	The other matter that I should take into account is that I am being asked to decide a question of costs, the parties having compromised rather than having fought out these issues.  It seems to me that it would be quite wrong and unfair not to take that into account on a question of costs.  If I do not take it into account then that would create a disincentive to settle cases which would be undesirable.  It is obviously desirable in any circumstances that parties should settle if they can, not least for the simple and utilitarian point of view of the court, that the court’s resources can then be deployed to deal with other cases.  In my judgment, a further discount of 10 per cent is a fair deduction for the fact that the case has settled rather than having to be decided at trial.  Accordingly I will make an order that the claimant pays to the defendant 70 per cent of the defendant’s costs.  

Following further argument, the court gave the following further judgment: 

40.	I now have to decide what to do about interim payment.  There was a faint attempt to ask me to summarily assess the costs.  The defendant’s estimate of costs, while perfectly sensible from one point of view, is not in sufficient detail to perform a summary assessment and I declined to do that.  

41.	The order I have made is that the claimant pays 70 per cent of the defendant’s costs. On the basis of the estimate that means that the costs are likely to be in the order of £70,000, subject to a detailed assessment.  The first question is how much of an interim award I should make.  Mr Chacksfield suggests I should make an order for 70 per cent of £70,000 which he says is about £50,000, or possibly a bit less, down to £40,000.  Mr Turner suggests I should make an order for four-ninths of the sum, which he says is about £30,000.  In my judgment, a particular factor I can take into account is that an organisation such as Tesco, while it is perfectly entitled to its money, is not an organisation which is going to be troubled by the lack of the sum, whereas it is clear that the claimant is in a small way of business.  Accordingly, by way of an interim payment I will accept Mr Turner’s submission and make an order for £30,000.  

42.	The next question is: when should it be paid?  Mr Turner asks that I should provide for a longer period than is normal because that will give the claimant’s insurers the time to produce the money.  He explained that once the insurer provided the money to the claimant for payment to the defendant, the purpose of the money will be to pay Tesco.  Therefore it would be wrong if that money was used in any other way.  In my judgment Mr Turner is right about that.  It seems to me that in the circumstances it is perfectly sensible that the claimant should be given a time for its insurers to be able to produce the money.  Mr Turner asks for 45 days and I will make an order for 45 days.