Clarity as to how a patent can be used in a situation of deadlock

The Court of Appeal has held that the Comptroller of Patents has wide jurisdiction to order the grant of licences under a patent in circumstances where dispute between co-proprietors is preventing exploitation.

The co-proprietors had formed a company called Trim Cool Ltd to exploit the patent. They were sole directors until November 2005 when Mr Paxman resigned as a director. The only two shares were in the name of Mr Hughes but he held one on trust for Mr Paxman. The company became deadlocked as to whether the patent should be licensed to the third party.

The 2 issues put before the court concerned a) The Jurisdiction Issue: does the Comptroller have jurisdiction under s.37 on the application of one co-proprietor to order that licences under the patent be granted; and b) The Company Law issue: whether Mr Paxman, while being a director of Trim Cool would have been acting in breach of his fiduciary duty to the company to seek the licensing of the patent to the third party.

The Jurisdiction Issue

The relevant law for determining the default position for co-proprietors is the Patents Act 1977:

Section 36(3) states that subject to the provisions of sections 8, 2 and 37 and to any agreement for the time being in force, where two or more persons are proprietors of a patent one of them shall not, without the consent of the other, grant a licence under the patent or assign or mortgage a share in the patent.

Section 37 states that after a patent has been granted for an invention any person having or claiming a proprietary interest in or under the patent may refer to the comptroller the question of whether any right in or under the patent should be transferred or granted to any other person or persons and the comptroller shall determine the question and make such order as he thinks fit to give effect to the determination. An order of the Comptroller may grant any licence or other right in or under the patent.

Decision

Neuberger LJ found on behalf of Mr Paxman. Generally, he was of the view that Parliament could not have intended for it to be possible that exploitation of an invention could be frustrated by a deadlock situation. The entire aim of the patent system is to encourage innovation and the exploitation of inventions for the benefit of the public. He added that under the previous legislation (1949 Act) such jurisdiction existed and cited the 4th Edition (1974) of Patents for Inventions as further evidence that the provision “goes beyond a mere power to determine rights and allows the breaking up of a deadlock produced by insistence of one co-owner on his right to prevent the others from dealing with the patent”.

Further, because the jurisdiction clearly existed for the 45 years prior to the 1977 Act without any criticism Neuberger LJ held that there appears to be no reason to cut down the jurisdiction.

Neuberger LJ also held that once the circumstances were such as to give jurisdiction, the basic rule was that the Comptroller could order the grant of a licence “on such terms as he thinks fit” (s.48(2)).

Finally, Mr Hughes raised a Human Rights point that the discretion was so wide that it amounted to an arbitrary power to cut down the rights of a co-owner in violation of the principle of legal certainty. This too was dismissed as the Comptroller is required to act rationally, fairly and proportionately.

The Company Law point

Mr Hughes argued that whilst a director of Trim Cool, Mr Paxman would have been acting in breach of his fiduciary duties to seek the licensing of the patent to a third party. The argument was dismissed as any such violation is a matter between the company and Mr Paxman (not shareholders) and Trim Cool did not make the complaint.

Comment

Frustration over exploitation issues can easily arise when suitable arrangements for co-ownership are not made. This judgement demonstrates that the courts will endeavour to uphold the aims of the patent system to allow fair exploitation of an invention, providing the Comptroller with the jurisdiction and authority to act in a deadlock situation.