Retail tech patent protection invalid due to prior disclosure in negotiations, UK court rules

Retail tech is changing the way consumers interact with retailers and enabling retailers to use innovative technology to increase margin and improve customer experience. No one exemplifies this better than UK homegrown success story Ocado, which has changed the face of online grocery shopping and whose prized robot-warehouse technology is in the process of being licensed all around the world.

A recent dispute between Ocado and its former tech supplier AutoStore underscores the increasing importance of patent protection and avoiding patent infringement in the retail and consumer sector.

Back to basics

In a sector where patent protection is sometimes seen as less relevant, this decision highlights the need to remember patent law basics – namely, that inventions will only be protectable if they are new or novel and that technology users should ensure they have freedom to operate in order to avoid infringement proceedings. The novelty requirement is interpreted strictly and any public disclosure of an invention prior to making a patent application can render the protection invalid, including disclosures made in the course of commercial negotiations.

It is crucial that inventions are kept confidential prior to filing an application for patent protection. This can include treating the invention as a trade secret and not making any disclosures where possible or taking adequate steps to impose a duty of confidentiality under relevant local laws on any disclosures before the application is filed.

In this decision, the UK Patents Court invalidated two of AutoStore's patents due to prior public disclosures of its inventions in Russia. The court also found that had the patents been valid, Ocado would not have infringed them. This decision arises in the context of an ongoing global dispute between AutoStore and Ocado concerning automated warehousing solutions. It also follows defeat for AutoStore in the US, where three of its patents were held to be invalid and Ocado was found not to infringe a fourth.

The Russian disclosures

This case principally concerned two of AutoStore's patents covering an automated system for storing and retrieving containers in a warehouse. AutoStore was a former tech supplier to Ocado. Subsequently, Ocado developed its own robotic warehousing system. AutoStore alleged that this infringed its patents. In response, Ocado argued that AutoStore's patents were invalid because AutoStore had "publicly disclosed" the inventions in Russia before seeking patent protection.

In 2010, the Central Bank of the Russian Federation instructed an intermediary, EVS, to undertake discussions with AutoStore to determine whether its system could be used for automatically storing and handling currency. To meet the bank's requirements, AutoStore emailed EVS details of its proposed new designs for a new system, along with computer generated sketches. The email contained a disclaimer at the bottom that it may contain confidential information. At trial, AutoStore, EVS and the bank all stated that they regarded the contents of that email to be confidential.

The discussions did not advance until the following year, when AutoStore gave a presentation to both EVS and the bank at its premises in Norway. The presentation included the previously emailed sketches and others, giving more detail on the proposed robotic system. Following this meeting, terms of a distribution agreement were negotiated and agreed between AutoStore and EVS, and eventually the system was delivered to the bank.

Were the disclosures public?

Patent protection will only be available if, among other things, an invention is new. This means that the invention must not "form part of the state of the art". An invention will form part of the state of the art if it has been made available to the public, whether in the UK or elsewhere, before the filing date of the patent (or priority date if priority of an earlier patent is claimed).

This requirement is interpreted strictly – it can include written or oral disclosures and a disclosure is considered "public" if the information is communicated to any member of the public who is free to use that information. The extent to which the information is known is irrelevant. However, if it is communicated in confidence then it does not amount to a public disclosure.

In this case, the fact that the disclosures were made by AutoStore was not disputed. But AutoStore maintained that the disclosures were not public as they were made under an obligation of confidence. In deciding whether there was an obligation of confidence, the judge applied the law of the country in which the damage would hypothetically occur if there was a breach of confidence. On this basis, Russian law was applied.

When the disclosure was first made by email to EVS in 2010, the judge held that under Russian law there was no obligation of confidence binding EVS. Under Russian law, the email disclaimer AutoStore included was not enough to conclude an obligation of confidence. Although not necessary given this finding, the judge also held that the disclosure at the meeting in 2011 had also been without an obligation of confidence in Russian law.

Osborne Clarke comment

Ongoing technological advancements, increasing digitisation and automation in the sector are only set to heighten the importance of securing the strong intellectual property protection that patents can secure for new technologies.

Overall, this decision highlights just how easy it can be for a party to fall foul of the strict patent law novelty requirement by inadvertently making a public disclosure prior to making a patent application. Once a public disclosure has been made, it cannot be undone. As such, inventions should always be treated as confidential prior to making a patent application.

Interestingly, the judge noted that had the disclosures been made under English law, then both the 2010 email and the 2011 meeting would have been made under an equitable obligation of confidence. However, the applicability of Russian law emphasises the need to exercise caution when making what are thought to be confidential disclosures outside of the UK.

Russian law was determined to be applicable because it was the location where any hypothetical damage would have occurred if there was a breach of confidence – UK law was not relevant to this question nor was AutoStore's place of domicile, Norway. If a confidential disclosure prior to application is necessary, then local law advice should be sought to ensure confidentiality requirements in the relevant jurisdiction are met.

This case also highlights the importance of undertaking a full risk assessment when parting ways with a tech collaborator. In this case, it has resulted in multijurisdictional patent litigation, which has no doubt been an unwelcome distraction for both sides.