Anan Kasei Co Limited & Anor v Neo Chemicals & Oxides (Europe) Limited & Ors

The Court of Appeal dismissed the appellants' challenge to Bacon J's dismissal of most of their damages claim for patent infringement. Key legal principles affirmed were the distinction between factual "but for" causation and legal (proximate) causation, and the availability of damages for losses outside the United Kingdom where such losses are both factually and legally caused by infringing acts in the UK. The court rejected the defendants' arguments that territoriality under patent law or Article 3(2) of Directive 2004/48/EC/TRIPS barred recovery of extraterritorial losses, but upheld the trial judge's finding that Neo's UK supplies of infringing samples and initial quantities were not the "common sense" or proximate cause of the later overseas commercial sales.

On quantification the judge's findings that Rhodia would have lacked capacity before 2018 (entitling them to a reasonable royalty for that period) and that from 2018 lost profits could be claimed were upheld; the judge's assessment of a reasonable royalty (35% of the relevant contribution margin under the simplified economic benefits model) was held to be open to her. Applications by Neo to raise late arguments and adduce fresh evidence concerning the exclusivity of the licence were refused as too late.

Background and parties: The First Appellant (Anan) owned European Patent (UK) No. 1 435 338 and the Second Appellant (RhodiaOps) was the exclusive licensee. Rhodia sued Neo for patent infringement; liability had been established at first instance by Roger Wyand QC ([2018] EWHC 843 (Pat)) and Neo's challenge to validity was dismissed on appeal. The present appeal concerned the inquiry as to damages following findings of infringement: the High Court (Bacon J) dismissed most of Rhodia's damages claim by reason of lack of legal causation.

Nature of the claim and relief sought: Rhodia sought damages for lost profits and, in the alternative, a reasonable royalty, amounting in total to over €24 million. The live issues on inquiry were (i) lost sales to Johnson Matthey (JM) outside the UK in territories where Rhodia had no patent protection, and (ii) losses from sales after expiry of the patent.

Issues framed by the court:

• Whether losses arising from Neo's non-UK supplies could be recovered given patent territoriality and whether recovery would be disproportionate or create a barrier to legitimate trade (Article 41 TRIPS / Directive 2004/48/EC);
• whether Neo could have supplied a non-infringing alternative acceptable to JM;
• whether Neo's UK infringing supplies were the factual and legal (proximate) cause of the overseas sales (causation and remoteness);
• quantification issues including the periods for lost profits and assessment of a reasonable royalty;
• whether Neo should be permitted to raise new points or adduce fresh evidence about the asserted exclusivity of the licence.

Court's reasoning (concise): The Court of Appeal agreed with Bacon J that English law permits recovery for extraterritorial losses where those losses are both factually and legally caused by domestic infringing acts; accordingly, territoriality did not automatically bar recovery. The court also rejected Neo's argument that recovery would be contrary to Article 3(2) of the Enforcement Directive or Article 41 of TRIPS so long as remedies are applied without creating disproportionate barriers to legitimate trade.

Nevertheless, the claim failed because the trial judge was entitled to find that the UK infringing supplies were not a sufficiently proximate or effective cause of the subsequent overseas sales. The judge properly applied the established distinction between "but for" causation and legal causation, considered the relevant authorities (including Gerber v Lectra, SAAMCo, Kuwait Airways, and the Supreme Court's guidance concerning legal filters), and evaluated pertinent facts: the multiple contingencies between UK samples and overseas commercial orders, the contractually separate and ad hoc nature of overseas orders, and dual qualification of Neo and Rhodia as suppliers, including the role of car makers' decisions which turned on whole-catalyst performance. On quantification, the judge’s reasonable royalty approach (using Neo’s prices as a reference and allocating 35% of the contribution margin to the licensor) was a permissible evaluative estimate. Applications to adduce the 2016 exclusive licence or for disclosure of the Master Distribution Agreement were refused as too late and not meeting the criteria for fresh evidence.

The appeal is dismissed. The Court of Appeal affirmed Bacon J's approach: (a) damages for extraterritorial losses are in principle recoverable where those losses are both factually and legally caused by infringing acts in the UK; (b) however, on the facts the trial judge was entitled to conclude that Neo’s UK infringing supplies were not the proximate or 'common sense' cause of the overseas sales; (c) the trial judge's quantification approach, including the award of a reasonable royalty (35% of the contribution margin in the notional negotiation), was open to her; and (d) Neo's late attempts to raise novel pleading points and to adduce fresh evidence about licence exclusivity were refused as too late.

Proceedings commenced in April 2016 in the Patents Court (Intellectual Property List). Liability was determined in favour of the claimants by Roger Wyand QC ([2018] EWHC 843 (Pat)). Neo's earlier challenge to validity was dismissed on appeal to this Court (see the judgment's references). Bacon J conducted the inquiry as to damages and dismissed most of Rhodia's damages claim ([2022] EWHC 708 (Pat)). The present appeal followed to the Court of Appeal ([2023] EWCA Civ 11).