Fresenius Kabi Deutschland GMBH & Ors v Carefusion 303 Inc

A patent claim is not subject to an automatic Earth Closet costs regime merely because the patentee discontinues after a new invalidity case is pleaded. Civil Procedure Rules Part 38.6 applies in patent proceedings. The usual presumption is that the defendant receives its costs, and the claimant must show cogent reasons, normally involving unusual circumstances, to depart from it. Prospects of success or pragmatic and financial reasons alone are insufficient. Evidence that an amendment caused a claimant to abandon a case may justify a different costs order, but the court should avoid a mini-trial. A costs order should be based on what has occurred, not made proleptically. The Court of Appeal therefore ended the established Earth Closet practice, while holding that the particular election under the lower court’s order had been valid.

Fresenius brought proceedings seeking revocation of CareFusion’s patent, while CareFusion counterclaimed for infringement. Norris J permitted Fresenius to amend its invalidity case and made an Earth Closet order governing the parties’ costs if CareFusion withdrew its defence and counterclaim and consented to revocation. CareFusion purported to make that election. Arnold J held that the election was invalid because Fresenius had not served the amended pleading and CareFusion’s reasons did not satisfy the order. The appeals concerned the construction of Norris J’s order, the validity of CareFusion’s election, and whether an Earth Closet order should have been made at all.

Disposition. The Court of Appeal allowed CareFusion’s appeal against Arnold J’s construction of Norris J’s order and allowed Fresenius’s appeal against the Earth Closet order. Permission to appeal against the costs order on the amendment application was refused.

1. Civil Procedure Rules Part 38.6 establishes the ordinary costs regime for discontinuance. The defendant is presumed to recover its costs, and the claimant bears the burden of showing a good reason for departure. Cogent reasons and unusual circumstances are normally required. The prospect that the claimant would have succeeded, or the fact that discontinuance was pragmatic or financially motivated, is insufficient by itself. The principles in Brookes v HSBC Bank plc [2011] EWCA Civ 354 apply equally to patent proceedings.
2. There is no special patent-law exception permitting a proleptic Earth Closet order. The court should exercise its existing discretion under Part 38.6 on the basis of what has happened, rather than on an assumption about what may happen. The factors identified in GEC Alsthom Limited’s Patent [1996] FSR 451 were cogent reasons for ending the practice. CIL International Ltd v Vitrashop Ltd [2002] FSR 67 did not justify a different conclusion.
3. Fresenius was entitled to challenge the practice on appeal despite not opposing it below. The challenge had not been adequately foreshadowed, the hearing had not afforded a full opportunity to develop it, and CareFusion had taken no irreversible step in reliance on the order. The approach in Allen v Bloomsbury Publishing Ltd [2011] EWCA Civ 943 was distinguishable.
4. On the proper construction of Norris J’s order, time for CareFusion’s election began when the order was made, not when Fresenius served a re-amended statement of case. The order’s wording, fixed timetable, costs provisions and litigation context cumulatively required that conclusion.
5. CareFusion’s election was valid. Its reference to paragraph 6 necessarily incorporated the requirement that the election result from the amended matter. The additional expense of investigating the new prior-use allegation could have contributed to the decision, even though CareFusion continued to believe that the patent was valid. The appeal against Arnold J’s order was therefore allowed.

• Court of Appeal (Civil Division): allowed CareFusion’s appeal on the construction and validity of the election, allowed Fresenius’s appeal against the Earth Closet order, and refused permission to appeal against the amendment-application costs order.
• Chancery Division, Patents Court: Norris J permitted amendment and made an Earth Closet costs order on 26 September 2011. Arnold J held on 12 October 2011 that the election was invalid, continued the action, and made directions for evidence and trial.