Provision potentially "toothless" and "not very well thought-out": a less than ringing endorsement for s68 PA 1977

The Kat brings news of the decision of the Court of Appeal (Sir Robin Jacob providing a judgment with which Ward and Patten LJJ agreed) in the latest round of the Schütz v Werit dispute ([2011] EWCA Civ 927) – this time on the interpretation of s68 PA 1977. The judgment was handed down on Friday but has not yet made it onto Bailii – it is currently only available via the subscription-based Lawtel service.

Readers may recall the main dispute, handed down on 31 March 2011 ([2011] EWCA Civ 303 – noted by the IPKat here), concerning the “re-bottling” (i.e. replacing the old bottle with a new one from the same manufacturer) and “cross-bottling” (i.e. replacing the old bottle with one from a different source) of intermediate bulk containers (such as the one to the right). The Court of Appeal (Ward, Jacob and Patten LJJ) held the challenges to the patent’s validity failed and that Werit was infringing. However, shortly before the official date at which the judgment was handed down (but after the parties had received the draft judgment) Werit informed Schütz that it would be taking a point under s68 PA 1977.

The patent in question was owned by Protechna, a Swiss company, and Schütz was the exclusive licensee. As an exclusive licensee, Schütz had standing, under s67 PA 1977, to bring an action for patent infringement – having “the same right as the proprietor of the patent” in this respect. The problem was this: the license agreement was entered into at some point in 1994, but was only registered at the Patent Office in July 2008, just before the infringement action was commenced against Werit. As readers will be aware, the effect of non-registration of a transaction of this kind is detailed in s68 PA 1977. Section 68 states that:

"Where by virtue of a transaction …[etc] a person becomes the …exclusive licensee of a patent and the patent is subsequently infringed, before the transaction …[etc] is registered, in proceedings for such an infringement, the court …shall not award him costs or expenses unless -

(a) the transaction, instrument or event is registered within the period of six months beginning with its date; or

(b) the court or the comptroller is satisfied that it was not practicable to register the transaction, instrument or event before the end of that period and that it was registered as soon as practicable thereafter."

s68 was amended with effect from 29 April 2006 by the Intellectual Property (Enforcement etc) Regulations 2006 – itself required so as to comply with the UK’s obligations under Art 13 and 14 of the Enforcement Directive (2004/48/EC). Prior to this point, s68 prohibited the unregistered exclusive licence holder from being awarded "damages or an account of profits" rather than "costs or expenses". The infringement complained of in the main case covered both pre- and post-amendment periods.

Werit contended that Schütz was accordingly not entitled to financial compensation for any infringement occurring prior to 29 April 2006, and was also not entitled to costs. Schütz, as might be expected, took a different view, arguing that it was too late for Werit to take the s68 point at all, and that even if this was not the case it was still entitled to its costs.

Was it too late?
Werit had argued that s68 provides a complete bar on the court’s power to award costs and so it did not matter whether the point was pleaded in a timely fashion, or not. The Court agreed – as Sir Robin Jacob explained:
[16] “The purpose of the section is to make people register relevant transactions timeously. Any benefit to the defendant is happenstance. The section is not framed in terms of a defence which is there to be taken: the section says “the court shall not.”…

[17] “That being so it is unnecessary to consider whether s.68 had been properly raised.”
The construction of s68
Werit argued that on the proper construction of s68 Schütz were precluded from being awarded costs. It described the section as putting the matter to the patentee's (or in this case, exclusive licensee's) election: “if he wants damages for the non-registration period he must forego costs; if he wants costs then he must forego damages for the period of non-registration.” Accordingly, the argument went that in order to claim costs Schütz must have restricted their claim for compensation to the period following registration. This had not been done and so Schütz must go empty-handed.

The Court did not agree. As a matter of construction, Sir Robin Jacob considered that:
[22] “…You would need extraordinary (sic) powerful words to say that the patentee or exclusive licensee was turned into some sort of outlaw who could never get costs however wrongly the defendant behaved and even though all the defendant’s acts were done after registration….”
The true construction of the section was “much more straightforward”. As the Court explained,
[21] “…It is simply this: if and in so far as a claim covers a period for which a relevant transaction was not registered when it should have been (a “non-registration period”) then any const incurred during that period cannot be recovered. Costs for periods outside a non registration period are recoverable in the same way.”
[25] “There is nothing unfair about awarding a successful party its costs incurred after it has put its house in order by registering a transaction which should have been registered earlier….”
Werit’s argument that this approach might render s68 ineffective – in that an exclusive licensee who failed to get its licence registered would not lose much in the way of costs provided he remedied this situation by the time he started the action – was not considered to sway the matter. Despite agreeing that this could render the legislation toothless, the Court noted that whilst:
[27] “That is true …the previous legislation in most cases was not exactly toothy and in some cases would be toothless too. If a patentee or an exclusive licensee had failed to register the relevant transaction timeously but did so as soon as he learned of infringement or threatened infringement he would not have lost much, if anything save perhaps where the infringement was surreptitious and on a large scale. In the real world that is a rare event.”
The fact of the matter was that s68 was “not a very well thought-out piece of legislation” in either its current or original form. In respect of the period before amendment of the provision, it was agreed that Schütz was barred from claiming compensation. This said, the Court considered that there was no disability as regards costs in respect of this period. Parliament did not intend to lump one on top of the other when altering the provision.

So Shütz lost some of its costs and some of its damages, but maintained the lion’s share of the former as these would inevitably have been accrued in the run-up to trial (by which time the transaction had been registered).

However, this is not the end of the matter as, for reasons known only to themselves, on 26 November 2009 a further agreement was made between Schütz and Protechna (the patentee) replacing the existing exclusive licence with a further exclusive licence which was then not registered (says Merpel: there's a theme developing here). The Court (reluctantly) adjourned consideration of this issue for argument on the question of costs in the period after this date. We'll be seeing this one again.
Provision potentially "toothless" and "not very well thought-out": a less than ringing endorsement for s68 PA 1977 Provision potentially "toothless" and "not very well thought-out": a less than ringing endorsement for s68 PA 1977 Reviewed by Matt on Monday, August 01, 2011 Rating: 5

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