Adobe Systems Incorporated v Netcom Online.Co.UK Ltd & Anor [2012] EWHC 446 (Ch)

Case No HC10 C 00368[2012] EWHC 446 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 02/03/2012
Before
MR JUSTICE WARREN
Between
ADOBE SYSTEMS INCORPORATEDClaimant(1) NETCOM ONLINE.CO.UK LIMITEDDefendants(2) MUSSARAT FATIMA KOSAR BHATTIDefendant
Michael Hicks (instructed by Redd Solicitors LLP) for ClaimantJonathan DC Turner (instructed by Richard Slade & Co.) for DefendantsHearing Hearing dates: 24th and 25th January 2012
JudgmentMr Justice Warren :
[1]The underlying claim in these proceedings concerns alleged infringement by the first and second defendants (“Netcom” and “Ms Bhatti”, together “the Defendants”) of a number of Community trade marks and UK trade marks (together “the Registered Marks”) owned by the Claimant (“ASI”) relating to Adobe products. Proceedings were launched in February 2010. They were settled very shortly before the hearing which was due to come on before Arnold J on 7 April 2011. The parties did not actually appear before the Judge. Instead, a form of consent order which had been agreed was placed before him. He made an order in the terms of the draft which was sealed on that day (“the Consent Order”).[2]The Consent Order provided for an inquiry as to the damages suffered by ASI by reason of the Defendants’ acts of infringement of the Registered Marks. The inquiry is set to float from 17 April 2012. The Defendants wish to raise in the inquiry certain matters which they say make implementation of the Consent Order illegal. The issues are, briefly: i) Exhaustion of rights under the EU Trademark Regulation (Regulation 207/2009) (“the Regulation”) and the EU Trademark Directive (Directive 2008/95) (“the Directive”) where products are placed on the market in the EU with the consent of undertakings economically linked with ASI. ii) Abuse of dominant position contrary to Article 102 of the Treaty on the Functioning of the European Union (“TFEU”). iii) Agreements restricting competition contrary to Article 101 TFEU (originally Article 85 of the Treaty of Rome).[3]By an order dated 6 January 2012, Chief Master Winegarten ordered the determination, as preliminary issues, of the question whether these matters can be relied on, as a matter of principle, in the inquiry. Those preliminary issues now come before me.

The background

[4]The litigation concerns genuine Adobe products made with ASI’s consent and which bear Adobe trademarks applied with ASI’s consent. The relevant products have been distributed at some stage by licensed distributors of the Adobe group. In this context, the Defendants suggest that the relevant licensed distributors were appointed by an Irish subsidiary of ASI, Adobe Systems Software Irelands Limited. There may well be dispute, on the inquiry, about from where and to where distribution was made by licensed distributors and whether they acted within the scope of their licenses.[5]ASI contends that its trademarks have been infringed because, on its case, the Defendants sold Adobe products which were not placed on the market in the EU by or with its consent. It contends that Adobe products sold by the Defendants were supplied by licensed distributors of the Adobe group outside the EU who were prohibited in their agreements from supplying them into the EU. Apart from that, there is nothing before me, and nothing in the evidence yet adduced on the inquiry, to demonstrate the extent of any economic link between the Adobe group and licensed distributors other than the mere fact of a licence.[6]In order to deal properly with what, on its face, is a short point, I need to consider two aspects. In the first place, I need to examine the history leading up to the issue of proceedings and the course of the proceedings thereafter. In the second place, I need to say something about the law concerning parallel imports and about certain aspects of competition law.

The history

[7]There was an earlier action, commenced in 2007, to which two companies, Netcom Distributors Ltd (“Distributors”) and Genstar Ltd (“Genstar”), were original parties. The proceedings related to alleged infringement of registered trademarks by reason of dealings in unlawful parallel imports of Adobe products. Ms Bhatti and her brother were later joined to the proceedings on the basis that, according to ASI, they controlled and directed Distributors and Genstar. There was an application for summary judgment to be heard on 4 July 2008. The proceedings were settled.[8]According to ASI, at the end of 2007 or in early 2008, Ms Bhatti arranged for the business of Distributors to be transferred to Netcom. ASI alleged that Ms Bhatti has at all material times been the moving spirit behind, not only Distributors, but also Netcom.[9]During 2009, ASI made a number of test purchases from Netcom, five of which are listed in the Particulars of Claim in the present action. Rightly or wrongly, ASI concluded that Netcom’s business included dealing in illegal parallel imports of Adobe software and that the business was being run by Ms Bhatti.[10]As a result, ASI started these proceedings in February 2010 alleging infringement by the Defendants of the Registered Marks. In their defence, the Defendants denied dealing in imported Adobe software. At a hearing on 29 November 2010, Master Moncaster made an order in relation to disclosure. He directed that the Defendants should provide full disclosure of documents relating to their dealings in Adobe software and provide information about where relevant documents were held. Ms Bhatti has given an explanation of why the Defendants have failed to provide any relevant documents. ASI does not accept that Ms Bhatti is telling the truth but nothing turns on that for present purposes.[11]Of the five test purchases which I have mentioned, ASI has been able to identify that three had been supplied by ASI (or a related company) to a company known as Medyasoft, which was a licensed Adobe distributor in Turkey. In that way, ASI was able to establish that the products had been imported from outside the EEA. The chain of supply is not known to ASI and the Court has not been informed about it by the Defendants (who may not, of course, themselves know details of the chain). ASI considers that it is quite possible that the products were not supplied directly by Medyasoft to Netcom.[12]In early 2011, ASI obtained third party disclosure from an import agent used by the Defendants known as “Connoisseur”. ASI obtained a number of documents including two invoices to Netcom from a company in Dubai known as Central Freight Systems (“CFS”), to which I will refer later.[13]In December 2009, ASI made a further test purchase. ASI was able, to its surprise, to establish that the item in question had first been supplied by an Adobe group company to its distributor in Dubai known as Aptec Distributions FZ (LLC) (“Aptec”). ASI considers this test purchase to be of importance because, according to it, this revealed the involvement of the Defendants in the importation of significant quantities of Adobe products from Dubai. ASI say that the documents and the test purchase established the following chain of supply: i) An Adobe group company supplied the products to Aptec or companies related to it. ii) Aptec supplied the products to CFS in Dubai. iii) CFS exported the products to Netcom.[14]Although Ms Bhatti has from time to time acted in person, she, Netcom and Distributors have, over different periods, used the services of various different lawyers. The Defendants were represented before me by Jonathan Turner. In relation to the present proceedings, she acted in person (and for Netcom) until shortly before the trial date fixed for 7 April 2011. Counsel, not Mr Turner, was then instructed under the Bar Direct Professional Access scheme. The Defendants indicated that they wished the trial to be adjourned and filed an application to that end which was directed to be heard at the commencement of the trial. In the event, that application did not proceed because terms of settlement were agreed and the Consent Order was made.

The Consent Order

[15]In order to deal further with the history of the proceedings and to understand the parties’ positions, it is necessary to refer now to the relevant provisions of the Consent Order. The second recital reads as follows:
“AND UPON the defendants admitting (a) that the first defendant has imported into the United Kingdom Infringing Adobe Products (as defined below) and has sold, supplied and otherwise dealt in Infringing Adobe Products (b)….. and (c) that in particular (and without limitation to the foregoing) the consignments of Adobe Products (as defined below) which are the subject of the documents in trial bundle E are consignments of Infringing Adobe Products which were imported by the first defendant and that such acts of importation infringed each of the Registered Trade Marks and that the second defendant is jointly and severally liable in respect of such acts of infringement”
I shall refer to the consignments referred to in that recital as “the Bundle E products”.[16]The “Registered Trade Marks” are the Registered Marks within paragraph 1 above. “Adobe Products” are software products (including their packaging) to which any of the Registered Marks has been attached. And “Infringing Adobe Products” are any Adobe Product which “has been imported into the EEA without the consent of [ASI] and which has not been put on the market in the EEA by [ASI] or with its consent”. Those quoted words reflect, obviously, the wording in Article 13 of the Regulation, Article 7(1) of the Directive and section 12(1) Trade Marks Act 1994.[17]The documents in trial bundle E identify the Bundle E products, but do not identify all of the items to which the inquiry as to damages is said, by ASI, to extend.[18]As to that inquiry, paragraph 6 of the Consent Order provides, materially, as follows:
“6. There shall be an enquiry as to the damages suffered by the claimant by reason of the defendants’ acts of infringement of the Registered Trade Marks. The costs of such enquiry and the question of interest upon damages shall be reserved to the enquiry.”
[19]Paragraph 7 of the Consent Order makes a number of directions including a requirement for the defendants to serve a list of documents which are, or have been, in their possession custody or control which record or relate to any dealings by them in any Adobe Products since 23 November 2007. Adobe was to serve a statement of contentions in relation to the inquiry by 19 May 2011. The Defendants were to serve a statement of their contentions in defence by 2 June 2011.

The defences to the inquiry

[20]I have mentioned the three issues which the Defendants wish to take on the inquiry at paragraph 2 above. It is not suggested that I can or should deal with them on this application. If they can be raised at all, the time for doing so is in the course of the inquiry or pursuant to some further preliminary issue. Although Mr Hicks says the points made by Mr Turner on each of these issues are thoroughly bad points, he accepts for the purposes of this application only that I should proceed on the basis that they are arguable. I do, however, need to explain what those points are, if only briefly, in order to address the issue which is a matter for decision by me, namely whether the Consent Order precludes these issues being raised at all on the inquiry.[21]The exhaustion of rights issue. It is not disputed, of course, that there is no infringement by the use of a trade mark in relation to goods which have been put on the market in the EEA under that trade mark by, or with the consent of, the owner. What amounts to consent, in this context, has been the subject matter of decisions both in the Court of Justice and in the English Courts. Laddie J summarised the law in Hewlett-Packard v Expansys UK Ltd [2005] EWHC 1495, [2005] ETMR 111. I do not need to go into what it is necessary to show in order establish consent, save to say that although consent may be implied, it must be unequivocal. Further, as Jacob LJ made clear in Mastercigars Direct Ltd v Hunters & Frankau Ltd [2007] EWHC Civ 176, [2007] RPC 24, the placing of goods on the market outside the EEA does not exhaust the proprietor’s right to oppose the importation of those goods without his consent.[22]The Defendants say that some of the Adobe products which they sold were in fact placed on the market in the EEA by licensed distributors of Adobe group in the EU. To the extent that that is correct as a matter of fact, Mr Hicks accepts that the Defendants have not infringed the Registered Marks. The products are not within the definition of “Infringing Adobe Products” in the Consent Order because they would have been put on the market in the EEA with Adobe’s consent. The contentious point, however, is this: the Defendants say that where Adobe products have been supplied by an authorised distributor who is outside the EEA to someone within the EEA, this amounts to consent on the part of Adobe to the products being put on the market in the EEA for the purposes of the EU and domestic legislation which I have mentioned.[23]I have received lengthy submissions from both parties about this point, a point which, as I have said, it is not for me to decide on this application. Whichever side is right on the point, it seems to me abundantly clear that, at the time of the Consent Order, the point would at best, from the Defendant’s point of view, have been arguable if anyone then concerned in the present case had thought of it – as to which there is nothing at all to suggest that they did. The competition law issues – abuse of dominant position and agreement restricting competition.[24]So far as abuse of dominant position is concerned, breach of Article 102 TFEU is alleged on the basis that ASI and/or its associated companies (“Adobe”) are charging abusively high prices in the EU (including in the UK). The Defendants contend that the obtaining and enforcement of the Consent Order is part of Adobe’s policy of maintaining the abusively high prices.[25]So far as restriction of competition is concerned, it is said by the Defendants that the Consent Order was obtained to enforce, and as part of, a policy of enforcing restrictions in agreements between Adobe’s undertaking and its distributors and licensees which were contrary to Article 101 TFEU. It is also said that the Consent Order was itself an agreement which had as its object or effect the prevention, restriction or distortion of competition in breach of Article 101.[26]Those, in the barest outline, are the defences which the Defendants wish to raise on the inquiry. I do not propose to say anything about the facts which are said to lead to the conclusions that there is abuse of dominant position or any anti-competitive agreement. Adobe may have, indeed Mr Hicks says it does have, an answer to all of these suggestions. Further, since Mr Hicks accepts, for the purposes of the present application, that the legal contentions put forward by Mr Turner are arguable, I do not propose to say anything further about them save to say that they are, to me at least, surprising.

The effect of an order directing an inquiry as to damages

[27]I will be looking, in due course, at the proper construction of the Consent Order. But jumping ahead, one issue is whether, as a simple matter of construction, the Defendants can be heard to say that no product can be an Infringing Adobe Product unless it is shown actually to infringe. Mr Turner submits that, with the possible exception the Bundle E products, there is no admission in the Consent Order that any particular product is an infringing product. Accordingly, in the inquiry, it is open to them to take any point which would demonstrate that an allegedly infringing product had in fact been imported into the EEA by Adobe or had been put on the market in the EEA by Adobe or with its consent. Mr Hicks submits that the admission as to infringement made in respect of the Bundle E products has the result that, in relation to other products where no relevant distinction can be made between those products and the Bundle E products, those other products fall, or are to be treated as falling within, the definition of “Infringing Adobe Products”. Accordingly, if it is not open to the Defendants to raise the new defences in relation to the Bundle E products, it is not open to them to do so in relation to other products where no relevant distinction can be drawn.[28]In order to address that dispute, it is necessary to consider how an order for an inquiry as to damages operates in relation to products not specifically identified by the pleadings in the context of intellectual property.[29]In the context of a patent action, it is, as the majority in Coflexip SA v Stolt Offshore MS Ltd (No 2) [2004] EWCA Civ 213, [2004] FSR 34 observed at [152], the usual and convenient practice of the Patents Court to include in an inquiry other claims for damages which are indistinguishable from the claim in respect of infringement which is actually established even though those other infringements were in circumstances which have not been pleaded. Jacob LJ had more to say about this in UnilinBeheer BV v Berry Floor NV [2007] EWCA Civ 364, [2007] FSR 25 when discussing the various types of estoppel to which a judgment and order of the court give rise. He referred to the requirement under paragraph 11.1(1)(b) of the Practice Direction to CPR Part 63 that a patentee must give at least one example of each type of infringement (my emphasis). He went on:
“At trial the court will rule on whether each type pleaded is or is not an infringement. It will also rule on validity if there is a challenge to that. Under normal principles both rulings are res judicata and cannot be revised once all possibility of appeal is exhausted. And both rulings are not just on a sub-issue but on the causes of action decided upon at trial, namely whether or not the pleaded types of infringement do in fact and law infringe the patent and whether or not that patent is valid.”
[30]I see no material distinction in that respect between an inquiry in relation to patent infringement and one in relation to trade mark infringement. Accordingly, had Arnold J actually heard the action and given a reasoned judgment in favour of ASI, going on to make an order for an inquiry identical to that which is to be found in the Consent Order, the inquiry would cover allegedly infringing products in respect of which the claim for damages is indistinguishable in material respects from the claim for damages in respect of products where infringement had been established. The same result should obtain, in my judgment, where the inquiry follows from a consent order rather than a decision of the court. The route to that result may be slightly different. In the case of a judicial decision followed by an order, there is a cause of action estoppel. In the case of a consent order, the court has not adjudicated on anything and there is no cause of action estoppel. In my judgment, however, those facts would give rise to an estoppel of the Henderson v Henderson (1843) 3 Hare 100 variety. It would be an abuse of process to allow the Defendants to raise a new defence in relation to products indistinguishable in any material way, so far as concerns the point in issue, from the Bundle E products. Of course, if the Defendants are permitted to raise the new defences in relation to the Bundle E products, they can do so as well in relation to other allegedly infringing products.[31]Returning to the main issue (whether the new defences can be raised at all), Mr Hicks has demonstrated, by reference to the cases, that where an inquiry as to damages is ordered following a trial as to liability in a patent infringement action, the fact that the same patent is, or may be found, to be invalid in some other action, does not deprive the claimant to his right to damages on the inquiry: see Poulton v Adjustable Cover and Boiler Block Co [1908] 2 Ch 430, Coflexip and Unilin.[32]He then submits that, if an actual finding in a later case that a patent is invalid does not disturb an inquiry as to damages ordered in an earlier case, then it must follow that the Defendants in the present case are unable to disturb the inquiry which they have agreed should take place. I do not think that his conclusion necessarily follows from the approach in patent cases, although some of the things which have been said in those authorities do support his conclusion.[33]Thus, in Unilin, Jacob LJ noted that the majority in Coflexip agreed with his reasons for holding that Poulton should be good law as a matter of policy. In Coflexip, it is to be noted, the defendant had lost a patent infringement action and an order for an inquiry as to damages had been obtained against it. Between the date of the trial and the date of the inquiry, revocation of the patent was obtained by a third party, relying on prior art which had not been relied on by the defendant. Jacob LJ, referred to those reasons in this way at [42] of his judgment:
“It is perhaps worth articulating those policy reasons a little more. First and foremost, the estopped defendant has had a full and fair opportunity of attacking the validity of the patent in his own proceedings. Next there is a very, very strong public interest in the finality of litigation. Finally a party who had lost would have a strong motive for finding further or better reasons for attacking a patent and getting some third party to do so, thereby undermining the first decision. It is much better that he knows that the first litigation about validity is the time and place for him to get his best case together—that he knows he will have no second chance.”
[34]Those policy reasons strongly support the same approach in trade mark litigation as in patent litigation. But there is this difference. In the patent cases which I have referred to, the patentee was seeking, successfully, to assert a right as proprietor of a patent; the attack on that patent failed. The subsequent revocation of the patent, albeit retrospective, did not render unlawful any conduct on the part of the patentee. It simply meant that the patentee did not, in fact, have the rights as against the world that it had established, in the original litigation, against the defendant. And even in relation to the defendant, the injunction would be discharged. Thus, the majority in the Court of Appeal in Coflexip saw the distinction between discharging the injunction and allowing the enquiry to proceed as defensible (see at [137] of the Judgment of Peter Gibson LJ and Sir Martin Nourse). The final decision in the earlier proceedings established, in a way which the defendant could not challenge in later proceedings, the fact of the infringement of a valid patent before the decision and the consequent loss to the owner of the patent, the inquiry doing no more than quantify the damage that had been suffered up to the time of the judgment. An injunction, while granted because of the findings as to past infringement which the defendant was not allowed to challenge, was expressed to restrain future infringements.[35]In the present case, the situation is different in this respect. If the Defendants are right in their submissions, then they had, all along, a good defence to the infringement claim had they only raised it. What is important for present purposes is that the defence based on the competition law issues would, if successful, not only have provided an answer to the infringement claim but would also have demonstrated that Adobe had been, and still is, acting unlawfully. There is thus a pull, from a policy perspective, in allowing this defence, at least, to be raised in the inquiry: the public interest ought to be against enforcing unlawful arrangements. In contrast, there is no similar aspect of unlawfulness in relation to the defence based on the exhaustion of rights issue (viewed entirely separately from the competition law issues) and, correspondingly, no policy pulling against the public policy in bringing an end to disputes[36]I have found it helpful to consider the matter in stages and to look first at the position which would have obtained if Arnold J had actually heard the action (at what I will call “the hypothetical trial”) and given a reasoned judgment in favour of Adobe, going on to make an order including an inquiry identical to that which is to be found in the Consent Order (which I will call the “hypothetical order”). Would it then be open to the Defendants, on the inquiry, to raise the defences which they now seek to raise?[37]As to the defence based on the exhaustion of rights issue, the answer, in my judgement, is that the Defendants ought not to be allowed to raise this defence to resist the inquiry as to damages contained in the hypothetical order. The defence not having been raised at the hypothetical trial – that is the assumption to be made – it is too late to raise it in the inquiry. The time for taking the point was at the hypothetical trial. Unless set aside on an appeal, enforcement of the hypothetical order would not (apart from the competition law issues which I deal with separately later) give rise to any questions of unlawfulness. The public interest in the finality of litigation leads clearly to the result that the defence cannot be raised on the inquiry.[38]I reach that conclusion even on the assumption that there would have been no factual dispute. But it could well be the case that, even if the Defendants are correct about the exhaustion of rights issue as a matter of law, the actual arrangements between Adobe and its licensed distributors were not such as to bring the facts of the case within the principles for which the Defendants contend. That would be a matter for evidence. But given the possibility of factual dispute the case for refusal to allow the point to be raised now is even stronger.[39]I should make clear that I say nothing about the position in relation to the injunction. If, for instance, in another case, the Defendants’ arguments on the exhaustion of rights issue were vindicated, it may well be that, in relation to future alleged infringements of the Registered Marks, the court should recognise the true legal position as it does in the patent cases and thus modify (or perhaps even discharge) the injunction.[40]As to the defence based on the competition law issues is concerned, the position is not so straightforward. There remains the very strong public interest in the finality of litigation. And the proposition that the proper time for taking these points was the hypothetical trial is as true in this case as it is in relation to the exhaustion of rights points. But against the conclusion that the Defendants should not, therefore, be entitled to raise the defence based on the competition law issues, there is the policy consideration that the courts should not enforce arrangements which are in breach of competition law.[41]In that last context, I need to refer to three decisions of the ECJ relied on by Mr Turner. They are Case 65/86 Bayer v Sullhofer [1988] ECR 5249, Case C-453/99 Courage v Crehanand Case 258/78 Nungesser v Commission[1982] ECR 2015.[42]In Bayer v Sullhofer, certain patent litigation was settled. One of the terms was that Bayer granted Sullhofer a non-exclusive non-transferable licence for the manufacture of certain items, under a German patent it held, waived any claims in relation to infringement and undertook not to challenge the validity of a patent which Sullhofer had applied for. The German Oberlandesgreicht (the Higher Regional Court) considered that the no-challenge clause was incompatible with what is now Article 101 with the result, under German law, that the whole settlement agreement was invalid. The Bundersgerichtshof did not consider that the ECJ had yet decided that point and referred the matter for a preliminary ruling.[43]The Commission argued (see [14] of the Judgment) that such a clause was compatible with Article 101 where its purpose was to put an end to proceedings before a court, provided that the existence of the right in dispute is genuinely in doubt. That argument was rejected (see at [15] of the Judgment) on the basis that Article 101 made no distinction between agreements whose purpose is to put an end to litigation and those concluded with other aims in mind. But, and this is important, it is be to noted that this assessment of such a settlement was “without prejudice to the question whether, and to what extent, a judicial settlement reached before a national court which constitutes a judicial act may be invalid for breach of Community competition rules”.[44]In Courage v Crehan, the ECJ answered a number of questions referred to it by the Court of Appeal. The ECJ was concerned with a contract between the parties which was said to restrict or distort competition within the meaning of what is now Article 101 TFEU. It was held(1) that a party to the contract can rely on breach of the Article to obtain relief from the other party(2) that the Article precludes a rule of national law under which a party to such contract is barred from claiming damages for loss caused by performance of that contract on the sole ground that the claimant is a party to that contract and(3) EU law does not preclude a rule of national law barring a party to such a contract from relying on his own unlawful actions to obtain damages where it is established that that party bears a significant responsibility for the distortion of competition.[45]In Nungesser v Commission, there had been a dispute between two parties concerning the importation into Germany of certain seeds. That dispute was settled. The settlement was, according to the report, “reached in the framework of legal proceedings brought by Mr Eisele before the Landgericht [Regional Court] Bad Kreusnach for infringement of his exclusive rights after Louis David KG had imported from France and resold in Germany, without Mr Eisele’s authorisation, a quantity of certified seed of INRA varieties”. The defendant argued that the settlement was a judicial settlement within the relevant provisions of the German Code of Civil Procedure concluded between the parties in order to dispose definitively of a dispute before a German Court. Whilst that was accepted by the ECJ, it was noted that the judicial settlement did not have the authority of res judicata under German law. The Court, however, did not consider the question whether, and if so to what extent, a judicial settlement reached before a German Court may be declared void, still less did it address the position if there had been a res judicata. This was because the issue before it was a challenge to a decision of the Commission that the settlement agreement was in breach of what is now Article 101. The effect of the decision of the Commission was therefore confined to restraining Mr Eisele from relying on Clause 1 of the settlement to prevent the sale of the seeds.[46]I do not consider that any of those authorities leads to the conclusion that EU competition law would trump, retrospectively, the order for an inquiry contained in the hypothetical order. Those cases all concerned agreements and are distinguishable on that ground from the hypothetical order. But that is not a complete or satisfactory basis on which to conclude that the hypothetical order is binding because, if the Defendants are right on their submissions about abuse of dominant position, the hypothetical order would be bolstering that abuse just as much as enforcement of the Consent Order is said by the Defendants to do so.[47]What is more significant, in my judgment, is that a decision of the court would give rise to a res judicata in the form of a cause of action estoppel or perhaps an issue estoppel (nothing turns on which for present purposes). There would be a decision of the court binding between the parties (but not binding on anyone else) that the Defendants had infringed the Registered Marks entitling Adobe to damages in respect of the past and an injunction in respect of the future. It cannot, in my view, sensibly be suggested that the Court should not have made the hypothetical order in the light of factual material that was not put before it and legal issues (ie the exhaustion of rights issue and the competition law issues) which had not been raised before it.[48]If it were clear the Defendants would have had a good defence had the new issues been raised at the hypothetical trial, there might be something in the point that the hypothetical order should not be enforced for the future and even something in the point that the inquiry as to damages should not be enforced either. But that is far from the present case. Mr Hicks has accepted for the purposes of the present application that the defence is arguable but he has most certainly not accepted that the arguments are strong let alone that they would succeed. Moreover, in order to run the defence at all, a mass of further evidence would be needed before the Defendants could get their case off the ground.[49]It would not, in all of these circumstances, be right to allow the Defendants to go behind the order for the inquiry as to damages contained in the hypothetical order so as to raise a new case requiring a mass of new evidence. By refusing to allow the point to be raised, the court is not enforcing an unlawful agreement; rather it is enforcing its own order which might, if certain facts are proved and certain legal arguments made good, be shown to have been incorrectly made. In my judgment the strong public interest in the finality of litigation should, in these circumstances, clearly prevail.[50]This would not, in my judgment, be to fail to give effect to the requirements of EU competition law since it begs the very question at issue, namely whether there is a breach of EU competition law. Whether there is, or is not, such a breach is to be established, as between parties in dispute, in the national courts of a member state (unless the Commission itself brings proceedings or makes binding decisions). Matters of procedure in the resolution of such a dispute are for the national court. Provided that the national procedural rules satisfy the general EU principle of effectiveness (and where relevant the principle of equivalence), a decision of the national court reached in compliance with those rules is not open to challenge on the basis of EU law. If there is a contested point of EU law, the national court can, or must if it is the court of final appeal, refer a question to the CJEU for a preliminary ruling which the national court must, then, of course observe.[51]If a claimant fails to take a point of law (whether of domestic law or EU law) or fails to take issue on a relevant matter of fact, the procedural rules of the English court will ordinarily preclude the decision of the court being re-opened so as to allow the new point of law to be taken or new evidence to be adduced. It may be that, in exceptional circumstances, new points of law can be raised, or new evidence can be introduced, on an appeal. And it may be that in the case of a disputed point of EU law, a reference should be made to the Court of Justice before the English court makes it decision. But those points apart, I see no reason to think that there is anything contrary to EU law in the national court reaching its conclusions on the basis of the facts and arguments presented to it. It is not then open to the losing party to raise disputed points of EU law or to raise new areas of factual dispute in order to show that the order of the court, insofar as it relates to the past, is in any way open to challenge.[52]I say in respect of the past because the order for the inquiry as to damages contained in the hypothetical order (as in the case, too, of the actual Consent Order) relates to the past. I do not, and do not need, to say anything about whether the injunctive relief contained in the hypothetical order would be open to challenge or review.[53]I reach the conclusion, therefore, that had Arnold J actually heard the case and made an order along the lines of the Consent Order, it would not be open to the Defendants to raise the new defences on the inquiry. Does it make any difference to that conclusion that there was only a Consent Order?[54]Although a consent order reflects an agreement, it is not, of itself, a contract. It is, like any other order, an order which must be obeyed unless and until set aside. As Lord Hershell said in In Re South American and Mexican Company [1895] 1 Ch 37 at 50:
“The truth is, a judgment by consent is intended to put a stop to litigation between the parties just as much as is a judgment which results from the decision of the Court after the matter has been fought out to the end. And I think it would be very mischievous if one were not to give a fair and reasonable interpretation to such judgments, and were to allow questions that were really involved in the action to be fought over again in a subsequent action. I think, therefore, the judgment should be affirmed, and the appeal dismissed with costs.”
[55]Mr Turner submits, nonetheless, that the court should not enforce the order for an inquiry if (contrary to his arguments on construction, to which I will come) the Consent Order actually bites on the Bundle E products because to do so would be to enforce the unlawful trade practices of Adobe. In addition, no doubt recognising that they might need to have the Consent Order set aside, the Defendants issued an application late in the day, listed for the same time as the hearing of the preliminary issues, seeking to have the Consent Order set aside. He submits that under domestic law, a consent order can be impeached on any ground which would invalidate the agreement which it expresses, including a restraint of trade, referring to Huddersfield Banking Co v Henry Lister [1895] 2 Ch 273 at 280, 283 and 284 and to Gerrard v Read Blackburne J 21 December 2001 [inadequately reported at (2002) 152 22]. Non-compliance with binding provisions of EU law would similarly invalidate the Consent Order in this case. Furthermore, he says that if the Consent Order does not comply with binding provision of EU law, it must be set aside automatically under EU law, referring to Case 106/77 Simmental [1978] ECR 629 at paras 13 to 26, Case 58/80 Dansk Supermarketed v Imerco [1981] ECR 181 at para 17, Case C-224/97 Ciola v Land Vorarlberg [1999] WECR I-2530 paras 21 to 34 and Case C-173/09 Elchinov at paragraphs 24 and 31.[56]So far as concerns domestic law, it is no doubt the case that a consent order embodying an agreement which settles litigation can be set aside on the same grounds as any other agreement. This can occur, for instance, where a settlement agreement has been procured by fraud or as a result of misrepresentation or, perhaps more relevantly for present purposes, where the agreement is based on common mistake. There may be other grounds, as I will show. The Huddersfield Banking case is authority for the proposition set out in the first sentence of this paragraph. But it is worth noting that Vaughan Williams J, at first instance, considered that there were limits, saying this at p 278:
"if the arrangement come to was a compromise of doubtful rights and a give-and-take arrangement, parties to it could not afterwards have the compromise set aside because upon obtaining fuller information they thought they had made a bad bargain.” And on appeal, Kay LJ, at p 285 said: "
Now what constitutes a compromise? A compromise takes place when there is a question of doubt and the parties agree not to try it out, but to settle it between themselves by a give- and-take arrangement. I quite agree that if this was a case of that kind it would be extremely difficult to interfere with the order.”[57]This applies equally, I think where a party has overlooked a point, whether of law or fact, in deciding to make the agreement which he did.[58]I did not receive submissions from either party about when mistake of law can be relied on to set aside a compromise agreement let alone a consent order. As to that, I would simply refer to the discussion in Chitty on Contracts (30th edition) at 5-055 to 5-056. It appears from Brennan v Bolt Burdon [2004] EWCA Civ 1071, [2005] QB 303, it was accepted that a mistake of law may render a contract void; but there is no mistake of law if the relevant law was merely in doubt. So far as consent orders are concerned, Chitty makes reference to S v S [2003] Fam 1 where it was held that a mistake of law was not a sufficient ground to set aside a consent order made in ancillary relief proceedings although there was no such mistake on the facts. In Brennan, Maurice Kay LJ expressed sympathy with one reason for reaching that conclusion, namely that public policy favouring an end to litigation must prevail.[59]Mr Turner suggests that the parties were acting under a mistake of law so far as concerns the exhaustion of rights issue. I do not accept that for a moment. The relevant point was not even raised, no doubt because the novel argument which Mr Turner now raises had either never been thought of by anyone or had been rejected as not worth raising. What is clear is that ASI considers the point to be a bad one although it accepts, for the purposes of this application, that it is arguable. What is also clear is that, had it been raised before the Consent Order was made, ASI would have rejected it then just as it does now. Suppose, then, that the Defendants and their advisers, faced with that rejection, decided nonetheless to agree to the Consent Order, could it possibly be argued that the Consent Order should be set aside on the basis of a mistake of law? There can be only one possible answer to that question: Of course not. And that is so because there has quite simply been no operative mistake but simply a compromise of disputed legal rights.[60]So far as concerns the competition law issues, be they disputes of fact or disputes of how the law applies to the facts, there is nothing to suggest that the parties were acting under any sort of common mistake, whether of law or fact. Again, had the competition law issues been raised, they would have been hotly contested certainly in relation to matters of fact and possibly in relation to matters of law. As with the exhaustion of rights issue, it is hopeless to suggest that the Consent Order should be set aside on the basis of common mistake.[61]At this point, I wish to consider the decision of Blackburne J in Gerrard Ltd v Read. In that case, the company sued Mr Read, a former employee, for breach of an alleged duty of confidence owned by him to it. That dispute was compromised and a consent order was made on 27 July 2001. Paragraph 3 of the consent order reflected an agreed restraint of trade on the part of Mr Read. It was ordered that he should not until 30 April 2002 contact any individual whose names appeared in schedule 1 attached to the order or, in effect, proceed with requests for the provision of the services which he was providing (investment management services). Mr Read applied to vary the terms of the consent order so that the restriction would end on 3 January 2002 rather than in April. The basis of the application was that the company did not have a legitimate interest in restraining Mr Read for any longer period and that the existing restraint was contrary to public policy. The judge held that he had jurisdiction to vary the consent order by discharging a term which, as a matter of general law, is void and therefore unenforceable such as a term which is an unlawful restraint of trade. Moreover, he could do so while leaving the remainder of the order in force. He rejected the argument based on the public interest in finality and certainty. On the facts, however, Mr Read’s application failed and in reaching that conclusion, the Judge did refer to the public interest in holding a party to the terms of a consent order which he had reached with the benefit of independent legal advice.[62]That decision supports the view that the court has jurisdiction to vary (or, I think it follows, to set aside) an order, or part of it, which is void under the general law, including of course EU law which is binding on the court. In Gerrard Ltd v Read, the Judge, having decided that there was jurisdiction to vary the order, went on to consider whether he should do so. And so it is said in the present case that the court has jurisdiction to vary or set aside the Consent Order to eliminate the breach of EU law. It is then said that the jurisdiction should be invoked: the court should allow the issues to be raised and the appropriate time and place to do so is within the inquiry. Indeed, it is said that the court is obliged to allow the issue to be raised since EU law must be applied by the court and that the court should not lend its assistance to the enforcement of an agreement, embodied in the consent order, which is a breach of EU law.[63]I reject that submission so far as concerns the exhaustion of rights issue (save to the extent that it impacts on, and becomes part of the competition law issues). There is nothing unlawful (ignoring for the moment the competition law aspects) in Adobe enforcing its rights as proprietor of the Registered Marks and (again ignoring the competition law aspects) there is therefore nothing unlawful in the Consent Order.[64]I also reject that submission so far as concerns the impact of the competition law aspects on the inquiry as to damages. I do not consider that either Gerrard Ltd v Read or the EU cases cited to me, lead to the conclusion that the Defendants should be allowed to raise the new defences in the inquiry. Gerrard Ltd v Read was concerned with the continuing effect of that part of the order which imposed a continuing restraint of trade on Mr Read. Its validity, going forward, could be judged by the general principles concerning restraint of trade. On that basis, there may be something in a suggestion that the Defendants should be entitled to seek to discharge the injunction against future infringement contained in the Consent Order in the same way that the injunction fell away in the patent cases once the patent was revoked. I do not decide that point, which is far from clear in favour of the Defendants.[65]But in relation to the inquiry as to damages, the position, as I see it, is entirely different. Consider in this context a covenant by an employee given to his employer. The employee leaves service and breaches the covenant. The employer seeks an injunction and damages. The employee says that the covenant is a restraint of trade. The action is settled on the basis that the employee(i) submits to injunctive relief reflecting a narrower restraint of trade than the one contained in his contract of employment and(ii) agrees to account to the employer for the profit he has made out of dealings with identified customers. The agreement is embodied in a consent order including an inquiry as to the amount due. The employee cannot in my judgment attack the second of those, the obligation to account for the profit. That obligation is a reflection of the doubt which existed over the validity of the original covenant and it would be absurd to say that the employee could re-open the precise dispute which had been settled when there is nothing unlawful about that obligation as such. Moreover, there is this distinction between the past (damages) and the future (injunction): the employer’s cause of action for damages has, as a result of the settlement and consent order, gone. What he is left with for the past is a right to payment of what is found due on the inquiry as to which the validity or otherwise of the width of the new restraint of trade is irrelevant.[66]In contrast, the validity of the injunction depends on the validity of the underlying agreed restraint: the employee might be able, in the light of Gerrard Ltd v Read, to have the injunction set aside on the basis that even the narrower restraint is too restrictive and therefore invalid. That the employer might have extracted, as part of the settlement, a provision which is invalid is just his bad luck and judgment.[67]There is, in my judgment, a precise parallel with respect to alleged breaches of EU competition law. Mr Turner may be able to gain support from the three cases which I have mentioned at paragraph 42 above were the Defendants to challenge the scope of the ongoing injunctive relief. But even then the cases are not conclusive in his favour. Bayer v Sullhofer left open the position where a “judicial settlement” (which may well include a consent order) would be open to attack. Courage v Crehan has nothing, so far as I can see, material to say about agreements embodied in court orders. And Nungesser v Commission expressly shied away from saying anything about the validity of the order in contrast with the effect of the Commission decision.[68]Whether or not the cases provide support for challenging the scope of the injunction, I do not consider that they provide support for challenging the inquiry. I see no reason to think that the ECJ intended to decide that a consent order in the English Court would be open to attack, so far as concerns monetary compensation (damages) agreed by the parties for an acknowledged breach of some property right (infringement of the Registered Marks), on the basis of a breach of competition law. In this context it is to be noted that although a consent order does not give rise to a cause of action estoppel or an issue estoppel, it can give rise to the extension of res judicata recognised in Henderson v Henderson (1843) 3 Hare 100. This is essentially an estoppel based on abuse of process. I detect nothing in the EU cases which requires the domestic court to entertain new arguments or to receive new evidence in order to attack the resolution of issues which have been settled for the past. This is particularly so in a situation where, if the trial had actually gone ahead the next day, the competition law issues would not have been raised and, even if they had been thought of, could not have been raised without an adjournment for the production of a raft of new evidence.[69]I do not overlook the fact that an abuse by Adobe of its dominant position and an agreement restricting competition would be of wider concern than simply Adobe and the Defendants. But there are avenues other than this litigation by which such abuse and agreement can be established and dealt with. There is nothing, in my judgment, in the present case which displaces the public interest in the finality of litigation.[70]The contrary view would have a surprising result. It would mean, in effect, that a dispute such as is found in the present case could never be settled. Indeed, Mr Turner was compelled to accept in his opening that it may be the case that a disputed point of EU competition law could never be compromised. It would always be open to a defendant, having settled an action, to say that the compromise agreement itself infringed EU law on precisely the grounds which had been compromised. To say “never” is perhaps putting it too high, since the claimant could always capitulate and reach a settlement under which, in consideration of withdrawing his claim, the defendant would forgo costs. But whenever some sort of monetary payment by the defendant was agreed – whether an agreed figure or a sum to be reached on an inquiry – the defendant would always be able to say “Well, I may have agreed that my claim was not certain to succeed and settled on that basis, but now I’ve changed my mind and want to assert the invalidity of our agreement”. Mr Turner’s response to that is that there could be no challenge to a consent order if the terms of the agreement “were about right” but I am afraid he failed altogether to explain to me, in a way which I could understand, what he meant by that.

Construction of the Consent Order

[71]I turn now to the construction of the Consent Order. I have proceeded thus far on the basis that the order for an inquiry as to damages would at the least cover the Bundle E products. I have already dealt with Mr Turner’s submission that, assuming that is right, the Consent Order does not cover anything else. He does not accept, however, that it does cover the Bundle E products. His argument on that point is in effect as follows: i) The Bundle E products were not in fact infringing products at all because the Defendants are correct in their contentions on the exhaustion of rights issue and the competition law issues. ii) The inquiry ordered by paragraph 6 of the Consent Order (damages suffered “by reason of the defendants’ acts of infringement of the Registered Trade Marks”) does not therefore bite since there were no such acts of infringement. iii) The recital does not lead to a different conclusion since(a) it is only a recital and does not govern the operative parts of the Consent Order and(b) the Bundle E products do not fall within the definition of “Infringing Adobe Products” since they were not in fact imported into the EEA without Adobe’s consent. The admission that the Bundle E products were infringing products is of no evidential value since there is an obvious explanation for it, that is to say an error of law shared by the parties and by Arnold J. iv) The Consent Order should be construed conformably with EU law, reliance being placed on Case C-106/89 Marleasing [1990] ECR I-4135 at §8. EU law must be applied by the court as an institution of a member state.[72]I reject that line of argument. It fails at different points. It fails, for instance, at the fourth stage. The meaning of the Consent Order cannot, I think, turn on the ultimate conclusion on the new points of law which the Defendants now wish to raise. There might be more in the point if the answers to the exhaustion of rights issue and the competition law issues were clear and would have provided a complete and obvious answer to Adobe’s claims if only the expert advisers to the Defendants had thought of them; but that was not the position. In my view, the meaning of the Consent Order is to be reached applying ordinary canons of construction without taking a view about what the correct answer to the disputed issues might turn out to be (if ever tested).[73]The argument fails at the third point. To say that the parties proceeded on the basis of an error of law is entirely to beg the question in favour of the Defendants. ASI does not accept the contentions of law (or indeed fact) which the Defendants now seek to raise and, if ever argued out, the Defendants may turn out to be wrong. At best from the Defendants’ point of view, it can now be said that there are arguable issues and that they may have been in error in accepting that the Bundle E products did infringe. But they did accept it as is made absolutely clear in the recital.[74]Having accepted it, it is clear, in my judgment, that the reference in paragraph 6 of the Consent Order to “acts of infringement of the Registered Trade Marks” includes importation of the Bundle E products. The first and second steps of the argument are therefore wrong.[75]In my judgment, the inquiry as to damages clearly bites on the Bundle E documents.[76]Further, in the light of what I have said at paragraphs 30 and 31 above, the inquiry is not restricted to damages incurred as a result of infringement by the importation of the Bundle E documents. It also covers allegedly infringing products in respect of which the claim for damagers is indistinguishable in material respects from the claim for damages in respect of the Bundle E products.[77]Mr Hicks has made submissions in relation to 5 companies (or groups of companies) which Adobe has identified as the source of allegedly infringing products and which feature in the parties’ respective written statements of contentions. They can be identified from paragraphs 18(1) to (5) of the Defendants’ statement of contentions. I refer to them (adopting Mr Hick’s abbreviation) as Pyramid Distribution, Connoisseur/the Dubai suppliers (concerned with the supplies by CFS which obtained them from Aptec), “Charles” (Starcom, Oracle, Decta), Al Suwaidi, Compudal.[78]As to Pyramid, the Defendants’ statement of contentions suggests that the allegedly infringing products were placed on the market in the EU with the consent of Adobe by licensees in the EU. If an authorised licensee in the EU did place such products on the market, Adobe does not dispute that such products do not infringe. But there is a dispute of fact since Adobe contends that the goods in question were first supplied outside the EU. Provided that the defence is restricted to supplies by a licensee in the EU (in contrast with a licensee outside the EU) the Defendants should be allowed to raise the point and Adobe does not assert otherwise.[79]As to Connoisseur/the Dubai suppliers, there are two lines of defence. The first is that only a few, if any, Adobe products were obtained using the route in question (via CFS and Aptec). This is in spite of what appears from two invoices. It is said that the inclusion of Adobe products on the invoices is a mistake. As I understand it, the relevant products are included in the Bundle E products. If that is correct, the Defendants cannot now go behind the consent[80]The second line of defence is essentially based on the exhaustion of rights issue. As to that, it follows from what I have said so far that the defence cannot be raised.[81]As to “Charles” and Compudal it remains to be decided as a matter of fact whether any supplies were made by these companies. But if they were, the position is the same as in relation to Pyramid.[82]As to Al Suwaidi, the Defendants deny any dealings at all. That is a matter of fact to be determined on the inquiry. If there were any dealings it will also be a matter of fact to be determined on the inquiry whether the claim in respect of these dealings differs in any material respect from that in relation to Connoisseur/the Dubai suppliers.

Measure of damages

[83]Mr Turner submits that, even if he fails in his submissions so far, the Defendants are entitled to raise the new issues to challenge the approach to the measure of damages for which ASI contends. ASI’s primary approach to damages in respect of each item of Infringing Adobe Software is to claim the difference between(a) the price at which Adobe supplied such an item and(b) the price which Adobe would have charged for such item had it been purchased by the Defendants through an authorised dealer in the UK. In seeking that measure of damage, the Defendants wish to assert that Adobe is relying on its own illegal conduct (namely its abusive pricing) in its quantification of damage. Mr Turner submits as follows: Such difference in price in the UK is the object and/or consequence of Adobe’s abuse of dominant position in breach of Article 102 TFEU and/or its anticompetitive agreements in breach of Article 101 TFEA. These illegal practices have maintained excessive prices in the EU which have been much higher than in other markets. Adobe must not be permitted to rely on and profit from its own illegal conduct and is not entitled to damages quantified on this basis.[84]In my judgment, this line of argument is to be rejected. On the assumption that I am right in refusing to allow the Defendants to raise the new issues as a defence to the inquiry, then I can see no justification for allowing them to raise exactly the same issues in ascertaining damages. The reasoning which has led me to refuse the Defendants to raise those points in relation to the substance of the inquiry (in contrast with possible objections to continuation of the injunction) lead inevitably in my view to a refusal to allow them to be raised when ascertaining the amount of damages. In principle, and absent the EU competition law points, the measure of damages claimed would appear to be an admissible starting point. It could be rejected as a permissible starting point only if the Defendants were allowed to raise and succeed in their competition law points. That would be inconsistent with my conclusion that the points cannot be raised because the Consent Order is binding and not avoided as a result of the competition law arguments.

Disposition

[85]I determine the preliminary issues in favour of ASI with the result that the Defendants are not permitted to raise the matters referred to in paragraph 1 of the Order of Master Winegarten dated 6 January 2012. I dismiss the Defendants’ application dated 23 January 2012 to set aside the Consent Order.

order

they have not demonstrated to me any ground on which the Consent Order, viewed simply as an agreement, could be set aside in that respect. If that is wrong, so that the products are not included in the Bundle E products, it will be a matter of fact to be decided on the inquiry whether the products are materially distinguishable from the Bundle E products.

Cited in 3 later judgments