Schütz (UK) Ltd v Werit UK Ltd & Anor (Rev 1)

We gave our judgment on this appeal on 31^st March 2011, [2011] EWCA Civ 303. We held that the patent under which Schütz was an exclusive licensee was valid and had been infringed. A day or so before the final handing down of the judgment (and after it had been supplied in draft to the parties on a confidential basis) counsel for Werit informed counsel for Schütz that a point under s.68 of the Patents Act 1977 would be taken. That point was that despite Schütz’s success, because Schütz’s exclusive licence had not been registered in time at the Patent Office, the effect of s.68 was that the court was precluded from awarding costs against Werit. Moreover the court could not award damages for the period prior to the amendment of s.68.

The point was obviously one of importance. Taken so shortly before the hearing it was necessary for an adjournment so that it could be properly researched and argued. This is my judgment following the full argument that we heard on 22 June 2011.

The patentee is Protechna, a Swiss company partly related to Schütz. Schütz is the exclusive licensee by virtue of a 1994 licence agreement. As an exclusive licensee, Schütz was entitled to take proceedings by virtue of s. 67 of the Act. It was necessary for the patentee to be joined as a party so as to be bound by the result. So Protechna has indeed been a party throughout the proceedings but has played no part in the litigation.

The licence agreement was not registered at the Patent Office until 17 July 2008 shortly before the present action was commenced on 7^th August 2008.

In the proceedings Schütz claimed financial compensation (damages or an account of profits) for all infringing acts coupled with an injunction to restrain further infringement. The period for which compensation is sought extends from at least the date of the licence agreement down to the present day.

Section 68 of the Patents Act 1977 was amended with effect from 29 April 2006 by the Intellectual Property (Enforcement etc.) Regulations 2006. These were made pursuant to the powers contained in section 2 of the European Communities Act 1972 so as to comply with the Enforcement Directive (2004/48/EC).

Articles 13 and 14 of the Directive provide:

Section 68 provides:

In Siemens v Thorn Security [2009] RPC 3 at [82] Mummery LJ said:

In Siemens the Court went on to examine the policy underlying the provision. After considering the relevant passages form the Banks Committee (the Committee whose report lead to the 1997 Act), the Court concluded at [90] that s. 68 should be construed broadly (emphasis added):

Werit says the effect of s.68 and its amendment is:

it is not entitled to costs at all.

Schütz says:

if it is not too late then it accepts that no damages are payable prior to the date of the amendment of the section but it says it is entitled to costs.

It is convenient to deal with this first, for if right it would not be appropriate to go further.

Werit says the Act provides a complete bar on the court’s power to award costs - it deprives the court of jurisdiction to award costs. That being so it does not matter whether the point was pleaded, raised at first instance at a point when it could have been or even referred to in a respondent’s notice in this court. The provision simply does not allow costs to be awarded.

Secondly Werit says even if that is not so and the point is one that ought to have been taken, it was sufficiently taken in the defence.

I think Werit is right on its first point. The purpose of the section is to make people register relevant transactions timeously. Any benefit to a defendant is a happenstance. The section is not framed in terms of a defence which is there to be taken: the section says “the court shall not.” Compare for example s.44 which indeed was pleaded and relied upon in this case, albeit unsuccessfully.

That being so it is unnecessary to consider whether s.68 had properly been raised. If it had been necessary so to do I would have concluded that it had not. Moreover, if it had been raised from the outset there would have been things that Schütz might have been able to do to change their position. In particular it might have been possible to enter into a new licence agreement and register that timeously. So it would have been prejudiced by the point being taken late, a good reason to refuse that being allowed.

Werit’s acts of infringement fall into three periods, namely the period before the amendment to the Act, the period following amendment until registration of the licence and the period after the licence had been registered. Each and every act of infringement is a separate wrong for which compensation is claimed.

Mr Thorley, for Werit, accepts that if compensation had been claimed only for the period following registration of the licence then costs could be awarded. But he says the true meaning of the section is that if compensation is claimed for a period when the licence was not but should have been registered then no costs can be awarded even for the later period when the licence was registered. He says the patentee is put to his 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.

Moreover says Mr Thorley as regards the period before the amendment of the Act, financial compensation was barred by the unamended section. The section is not retrospective (see per Mann J in Siemens [2008] RPC 4); if the action is brought after the amendment then the combined effect of the section before and after amendment is that neither costs nor damages can be recovered for that period.

I reject Mr Thorley’s submissions. I cannot see any Parliamentary intention to put a patentee to the kind of election he suggests. The position is much more straightforward. 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 costs incurred during that period cannot be recovered. Costs for periods outside a non-registration period are recoverable in the usual way.

I reach this conclusion as a matter of construction. It is clear that Parliament was not intending to say that once a party had failed to register a document in time it could never recover costs even if all the infringements complained of only occurred after registration. You would need extraordinary powerful words to say that the patentee or exclusive licencee 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. So the words “the patent is subsequently infringed before the transaction .. is registered” are clearly referring only to infringements during a non-registration period.

Parliament has put no bar on costs for infringement actions after such a period. So the court can award them. The normal rule is that it will award them to the successful party.

That makes sense also in terms of Art. 14 of the Directive in the light of which the amended s.68 must obviously be construed. It says that a successful party shall generally be awarded costs “unless equity does not allow them.” Obviously by the term “equity” the European legislator was not referring to that body of law developed in the English courts of equity prior to the Judicature Acts 1873-5: it merely meant “unfair”.

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. Take this very case. Most of Schütz’s costs were incurred after the exclusive licence was registered. I can think of no reason why Werit, who caused those costs by unsuccessfully resisting the claim during the period when the transaction was registered, should not have to pay them. It is only fair – equitable - to make it pay those costs. The penalty for non-registration simply does not run on into the period after registration.

That accords with the position before amendment of the Act. The penalty then was no financial compensation (rather than no costs) for infringements carried out during the non-registration period. For infringing acts done after late registration compensation could be awarded.

Perhaps Mr Thorley’s best point was that if one can get one’s full costs for acts done after registration then that might well render s.68 ineffective. An exclusive licensee who had failed to get his licence registered would not lose much by way of costs or indeed anything provided he got his licence registered before he started the action: all or virtually all the costs will be incurred after registration. So says Mr Thorley the legislation would be rendered toothless.

That is true. But 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. In the case of threatened infringement the patentee would lose nothing by late registration. Most patentees sue when they first learn of infringement and they learn of the infringement soon after it starts. For that reason patent actions are mainly about injunctions, not financial compensation.

The plain fact is that s.68 is not a very well thought-out piece of legislation, either in its original form or its current form. There is no obvious reason to give an infringer any benefit from the failure of the patentee to register a document timeously, at least where he has not suffered any prejudice by reason of non-registration. Nor is there any particular logic in a provision which in its original form could normally effectively have been avoided by registration as soon as infringement started, or in its amended form by registration prior to incurring the costs of an infringement action. Some thought may perhaps be given to an alternative sanction, for instance a requirement that late registration will only be permitted on payment of a substantial fee.

I did consider whether Parliament intended some sort of apportionment. The general idea would be to apportion the costs not recoverable and those recoverable depending upon time or scale of activity or something like that. But I do not think the section works that way and indeed it would seem impracticable.

I turn to the problem of what to do about the costs concerning the activities of the defendants prior to the amendment of the Act. It was held by Mann J. in Siemens that the amendment of s.68 was not retrospective. Mr Meade does not challenge that. So he accepts that no compensation can be claimed for Werit’s infringing activities prior to amendment of the Act. But did Parliament intend by the amendment of the Act not only to continue the previous disability as regards damages but also to add the disability as regards costs? I think the answer is clearly no. That follows for exactly the same reasons as I hold there is no disability as regards costs in respect of claims for infringement carried out after registration. The costs disability applies only to costs incurred in respect of claims for infringing acts done after amendment of the Act and prior to registration.

It is therefore not at present necessary to consider the elaborate points made about the possibility of Schütz making an election now so as to disclaim compensation for acts done prior to registration of the exclusive licence

That is sufficient to dispose of the matter as regards the costs up until 26th November 2009. However by a further agreement of 26^th November 2009 the earlier exclusive licence was replaced by a further exclusive licence which has not been registered. When the above decision was communicated in draft to the parties, Mr Thorley wrote to the Court to contend that the effect of our decision was that no costs were recoverable for the period after 26^th November. 2009. He relies on a decision of Pumfrey J in Spring Form v Toy Brokers, [2002] FSR 276.

Mr Meade has indicated that he does not accept that decision is applicable – because in the instant case Schütz has at all material times been an exclusive licensee. It did not become an exclusive licensee by the second agreement. We think the point is open to debate. Furthermore, even if that is correct, we are not convinced that Pumfrey J was necessarily right – the statutory purpose of telling the public who was the exclusive licensee was served by the registration of the earlier agreement. The point is of some importance.

Reluctantly we think there is no option but to adjourn the matter yet again for argument on the question of costs for the period after 26^th November 2009.

I agree.

I also agree.