Case Report: BASF Corporation & Ors v Carpmaels and Ransford

November 2021

Peter Sewell and Tim Sheldon

The claimants in this case claimed to have suffered US$1.2bn in lost profits from the defendant’s accepted failure to file an appeal in time against a patent revocation. In an interesting judgment dated 29 October, Mr Justice Adam Johnson held that the claimants failed to establish that a duty of care was owed to those entities who suffered the most substantial losses and failed to prove that their lost chance of securing some benefit from the patent, had an appeal been filed, was “real and substantial”. As such, the Judge held the claimants were only entitled to “nominal damages” because of the accepted breach of duty.

This article provides a summary of the case and the decision which highlights the importance of ensuring that ‘all the boxes are ticked’ in relation to causation when pursuing a loss of chance claim.

The Facts

The Claimants are BASF Group companies (collectively referred to as “the Claimants”) who specialise in the development of chemical products.
The Claimants developed an emissions treatment system for use in the automotive industry. In 2009 BASF Corp (“the First Claimant”) obtained a patent for the system (referred to as “Patent 458”).
Patent 458 was one of a family of patents that the Claimants had applied for in relation to the emissions technology, including a related European Divisional Patent (“the Divisional Patent”).
In March 2012 the European Patent Office revoked Patent 458 for lack of inventive step.
The First Claimant instructed patent agents, Carpmaels and Ransford (“the Defendant”), to challenge this decision by appeal. The date for doing so was 12 July 2012. There was no written retainer letter between the First Claimant and the Defendant.
Due to clerical error, the Defendant failed to appeal the European Patent Office’s decision in time.
The Defendant sought an application for reinstatement of the appeal, but that was refused on 31 January 2013.
The Defendant then sought to pursue the Claimants’ Divisional Patent application which was granted on 2 June 2015 (although the Divisional Patent was then later successfully challenged in 2017).

The Dispute

An appeal, if lodged in time, would have automatically suspended the revocation of Patent 458 for several years until 2015 when the appeal would have been heard and resolved.

The Claimants’ case was that during this period between July 2012 and 2015 it would have been able to exploit the technology reflected in Patent 458, because motor vehicle manufacturers needed to comply with new diesel emissions standards. The Claimants’ argued that with the benefit of an unrevoked patent during this period:

They would have received a far greater proportion of the vehicle manufacturers’ business in this area. Instead, they lost a significant portion of business to a rival technology company (the “Rival Company”). They claimed an overall lost profit figure of more than US$1 billion.
They would have received a greater licence income from the Rival Company and other competitors, who would have required a licence of Patent 458 in order to compete. Instead, licences of the patent family in relation to the Claimants’ emission technology only emerged once the Divisional Patent had been granted in June 2015. The Claimants’ argument was that by then, the commercial environment had moved on. Many awards of business had been made to competitors, vehicles were in production or close to it, and so the ability to drive a hard bargain in terms of the agreed royalty rate was diminished. Their claim for lost licence fee income was US$136,000,000.

The Defendant admitted breach but argued that it only owed a duty of care to the First Claimant. Whilst the First Claimant was the holder of the patent, the other Claimants were the sellers of the product which had the benefit of Patent 458 before it was revoked. Therefore, as there was no duty of care owed to them, the Defendant argued the Claimant had no claim for lost profit.

In addition, the Defendant stated that the Claimants were deprived of nothing of value because Patent 458 would have been a “zombie patent” (which had already been held invalid) and was of no real value in negotiating terms. The Rival Company and the vehicle manufacturers, who would have put pressure on the First Claimant to share the benefit of Patent 458, if it had any value, with its competitors, would therefore have given little credence to it.

The key issues in dispute therefore boiled down to:

To whom did the Defendant owe either contractual or common law duties of care?
What losses in fact flowed from the Defendant’s admitted breach?

Judgment

Duty of Care

The Claimants put great emphasis on the fact that there was no written retainer between the parties. They relied on case law to support the proposition that if the Defendant wished to limit its retainer only to the First Claimant, then it was its responsibility to do so expressly by means of a retainer letter. They argued that the consequence of the Defendant failing to do so was that it would have to accept the Claimants’ position that the retainer was in fact a wider one. Mr Justice Adam Johnson disagreed. He stated:

“…the absence of a retainer letter is a factor to be taken into account in making an objective assessment of who [the Defendant’s] clients were, but it is only a factor and is not determinative.”

Mr Justice Adam Johnson held that:

Whilst the Defendant engaged from time to time with the other Claimants, that was only for the purposes of representing the First Claimant as the patent holder and there was no assumption of responsibility to the other Claimants.
If there was a claim of real value relating to the lost chance to secure improved licence terms, then the First Claimant could assert it.
However, the measure of value did not obviously include the value of lost sale profits to other Claimants who were not subsidiaries of the First Claimant.

The loss

Although Mr Justice Adam Johnson held that a duty of care was only owed to the First Claimant, he nonetheless went on to consider whether, if a duty had been owed to all the Claimants, their loss of profits claim would have succeeded.

Had the appeal of revocation of Patent 458 been lodged in time, then its revocation would have been automatically suspended, pending the appeal being heard and resolved. Therefore, there was no positive step that the Claimants needed to prove they would have taken on the balance of probabilities. The Judge said that the only issue to consider was what would have happened in the counterfactual scenario in the period 2012 to early 2015. The counterfactual is not assessed on the balance of probabilities. Instead a Claimant’s losses will follow, based upon the chance of the counterfactual situation arising (the damages being assessed in percentage terms) provided that the lost chance or opportunity is a real one (i.e., a chance of 10% or more).

In a very careful consideration of the counterfactual evidence, Mr Justice Adam Johnson was not persuaded that the existence of Patent 458 in the period 2012 to early 2015 would have generated any real chance of the vehicle manufacturers and/or the Rival Company making different procurement decisions, so that a larger share of business went to the Claimants. His reasoning boiled down to his finding that:

The Rival Company was already preferred by the vehicle manufacturers.
The Rival Company and the vehicle manufacturers would have paid little attention to Patent 458 because:
- Such monopolies were rarely if ever exploited in the motor industry (and to do so would have jeopardised the Claimants’ relationship with those businesses).
- The Rival Company would have considered it likely that the appeal of Patent 458 would not have succeeded (the Judge considered this the most likely outcome on the facts, meaning nothing different would have happened after 2015).

In respect of the loss of chance of increased licence fees, the Judge held that this scenario depended on what the Claimants would have done (i.e. would the Claimants have wanted to conclude licence agreements on Patent 458 at this time) and the balance of probabilities therefore applied. The Judge was not persuaded that the Claimants would have concluded these agreements during the period.

As such, Mr Justice Adam Johnson held that the First Claimant was only entitled to nominal damages resulting from the Defendant’s admitted breach.

Comment

At first glance, this is a case where one could be forgiven for expecting a different outcome. The Defendant had admitted breach of duty of care in failing to lodge an appeal against the revocation of Patent 458. But for that breach, the suspension of revocation of Patent 458 would have been automatic pending the appeal. As such, the Claimants were in principle able to advance a claim for the lost chance, without being required, on the balance of probabilities, to show that they would have taken any positive steps to exploit Patent 458.

However, on a more detailed consideration of the facts it became clear that the party that suffered the breach was not the party that suffered the most substantial losses. Whilst the absence of a retainer will undoubtably increase the risk that, looked at objectively, a duty of care will be owed to more than one party, on the facts of this case, it was clear that any engagement with the other Claimants was only incidental to the Defendant acting for the First Claimant.

In addition, although the Claimants did not have to prove that they would have taken any positive step after the breach to establish their loss of profit claim, they still had to prove that the prospect of securing some benefit from the unrevoked patent was “real and substantial” (i.e. more than 10% chance of securing a better outcome). As the 98-page judgment demonstrates, whilst the court must necessarily favour simplicity in its approach to this assessment, it will still carefully consider all the available witness and documentary evidence of known and probable facts in coming to its conclusions.

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