Freeing patents from corporate paralysis

The IPKat found this case on subscription service Lawtel (it's not yet available on BAILII). It's Derek Hughes v Neil Paxman [2006] EWCA Civ 818, from the Court of Appeal on Friday (the court consisted of Master of the Rolls Sir Anthony Clarke, together with ex-Patents Court judges Lords Justices Jacob and Neuberger).

Hughes and Paxman, who were co-proprietors of a patent for a drinks cooler, formed a company to exploit that patent. Subsequently Hughes and Paxman fell out, Paxman resigned as a director and the company was unable to take any commercial decisions concerning the patent.

Paxman wanted to license the patent. However, the Patents Act 1977, s.36 entitled a co-proprietor to exploit the patent himself but not to sub-license its use by a third party. The Comptroller of Patents had power, on a reference under s.37 of the same Act, to determine "whether any right in or under the patent should be transferred or granted to any other person or persons" and to make an order "granting any licence or other right in or under the patent".

Hughes claimed that
* s.37 only concerned the determination of legal rights, but did not confer a wide jurisdiction upon the comptroller to grant or order a co-owner to grant a licence to third parties

* any jurisdiction to grant such a licence was vague, arbitrary and contrary to the European Convention on Human Rights 1950 (Protocol 1 Article 1);

* Paxman, acting while he was a director of the company, was in breach of his fiduciary duties to the company by seeking the licensing of the patent to a third party.
The Court of Appeal, upholding the decision of Mr Justice Kitchin, dismissed Hughes' appeal on the following grounds:
* on the application of one co-proprietor of a patent, the comptroller did have jurisdiction under s.37 to grant licences under the patent.

* Parliament could not have intended that exploitation of an invention could be frustrated by a deadlock situation and there was no doubt that the same jurisdiction to grant licences in such circumstances existed under the Patents Act 1949.

* the discretion conferred by that section was not so wide and unguided that it amounted to an arbitrary power to cut down the rights of a co-owner or violated the principle of legal certainty.

* so long as the Comptroller acted rationally, fairly and proportionately and hadregard to all the circumstances of the case, there was no arbitrary power but merely the power to produce a fair commercial solution when co-owners could not agree.

* any violation of fiduciary duty was a matter between the company and Paxman, but was not a matter that Hughes himself, as a mere shareholder could object to. In any event, on the facts there was no breach of fiduciary duty.
The IPKat is glad that the Court of Appeal has put beyond doubt the suspicion that s.37 was either insufficiently broad to confer the power in question or contrary to human rights: there's no value to patents that are allowed to be tied up, unused, when the public at large is restrained from using them. Merpel agrees and notes that this is yet another case in which UK intellectual property rights have seen off a spurious challenge based on human rights.

Earlier IPKat posting on this dispute, plus comment, here
How to make ice at room temperature here

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