England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
PATENTS COURT
(Mr Justice Pumfrey)

		Royal Courts of Justice Strand London WC2 Monday 30th April, 2001

1. LORD JUSTICE ALDOUS: Mr Robin Price, the claimant, seeks permission to appeal the order of Pumfrey J of 1st February 2001 which struck out his claim against Mr and Mrs Pike. That left Elf Print Media Ltd as the only defendants to the action.
2. The action, started in March 2000, was for compensation pursuant to sections 40 and 41 of the Patents Act 1977. That claim arose out of Mr Price's employment by Elf Print. In about September 1996 he made an invention, called the Teddipack invention, which was subsequently patented by Elf Print, his employer. For the purpose of this application (and I think for the purposes of the action) Mr Price accepts that the invention was made in the course of his duties and in those circumstances the invention belonged to Elf Print. However he alleges that it was of outstanding benefit to Elf Print and thus he should be awarded compensation for making the Teddipack invention in accordance with sections 40 and 41 of the 1977 Act.
3. As the judge pointed out at page 5 of the transcript of his judgment, the purpose of section 40 was to enable employed inventors to obtain an award from their employers in respect of inventions which were of outstanding benefit to their employer. It was considered unfair that inventors who had made outstanding inventions should not receive some share of the benefit that had accrued to their employer for such inventions. Thus the sections enabled the court to share with the employer the benefits and enabled the court to order employers to pay compensation determined according to the provisions of section 41 of the Act. Of course an employer can derive benefit from an invention from assigning his rights. Thus section 40(2) makes specific provision for compensation to be paid by the employer to the employee for rewards received by the employer on assignment. Section 41(1) provides:

"(1) An award of compensation to an employee under section 40(1) or (2) above in relation to a patent for an invention shall be such as will secure for the employee a fair share (having regard to all the circumstances) of the benefit which the employer has derived, or may reasonably be expected to derive, from the patent or from the assignment, assignation or grant to a person connected with the employer of the property or any right in the invention or the property in, or any right in or under, an application for that patent."

4. Subsection (2) provides that the amount of any benefit derived or expected to be derived by an employer from an assignment, assignation or grant to a person connected with him shall be taken to be the amount which could reasonably be expected to be derived by the employer if that person had not been connected with him. In effect the compensation is to be calculated upon the basis that the assignment or other transaction was an arm's length transaction.
5. Although Elf Print contest Mr Price's entitlement to compensation under sections 40 and 41 of the Act, it is not suggested that Mr Price's claim is not arguable. It is the claim against Mr and Mrs Pike that was struck out. As pleaded it arose because in about April 1998 the patent rights in the Teddipack invention were assigned by Elf Print to Mr and Mrs Pike for just over £42,000. That is said to be an undervalue of the rights assigned, as was known by Mr and Mrs Pike who at that time controlled Elf Print. It is said on behalf of Mr Price that that can be demonstrated by the licensing receipts of Mr and Mrs Pike from exploitation of the Teddipack invention. According to Mr Price, they are shown in a statement in an affidavit sworn on 25th March 1999 by Mr Pike. He stated in that affidavit that the current value of the invention based on a particular percentage of the packaging industry was a minimum of £1.4 million per year in royalties.
6. It is not suggested that Mr and Mrs Pike, who were directors of Elf Print at the time, were liable under sections 40 and 41 of the 1977 Act to pay compensation to Mr Price. What is alleged is that Mr and Mrs Pike procured Elf Print to assign the Teddipack invention to them at a gross undervalue. That assignment of the Teddipack invention to themselves was in breach of fiduciary duties they owed to Elf Print and accordingly they are liable to account to Elf Print for that breach of duty. The result is that Elf Print have a valuable chose in action, that is to say a cause of action against Mr and Mrs Pike for breach of their fiduciary duties. That may be right, but on its face it only provides a cause of action by Elf Print which, depending upon the facts, is an asset of Elf Print.
7. So far as Mr Price's claim against Mr and Mrs Pike, the crucial step as pleaded is the submission that he is entitled to compensation from Elf Print and is entitled to trace his entitlement to compensation from Elf Print through to Mr and Mrs Pike.
8. The judge rejected that submission and the application for permission to appeal sought permission to argue that matter before this court. Mr Shipley, who has appeared before me and concisely and clearly put forward submissions on behalf of his client, now accepts that that submission would stand no real prospect of success. In my view he is correct to adopt that course. It is clear from the terms of sections 40 and 41 that it is the employer who has to pay the compensation, if payable. Mr Price has no cause of action against Mr and Mrs Pike for compensation in respect of any breach of their fiduciary duties to Elf Print. On the assumption that Elf Print has a cause of action, it is that company which has it and there can be no proprietary claim in the hands of Mr Price which would enable him to trace.
9. Mr Shipley puts his case on an alternative basis. He says, both in his written submissions and in his oral submissions, that Mr and Mrs Pike are necessary and proper parties to the issue between his client and Elf Print. They are trustees of the profits made by the exploitation of the Teddipack invention for Elf Print. They have the relevant documents, as it appears that when they sold the company the documents were destroyed. Thus they are intimately connected with the assignment of the Teddipack invention and they are necessary parties to ascertain what is the compensation payable to his client.
10. Even assuming that the documents in the hands of Mr and Mrs Pike will be necessary to do justice between Mr Price and Elf Print, that cannot in my view justify the alleged claims made in the statement of claim. I can see no reason why they should be joined as defendants in a dispute between Mr Price and his ex-employer, Elf Print, just for the purposes of discovery. In my view they are not necessary and proper parties to the dispute, which is a dispute as to whether compensation is payable under sections 40 and 41 of the Patents Act 1977. It may be that it will be necessary for them to supply certain documents to enable the compensation to be ascertained. However that is another matter. There is ample provision for such discovery to be provided by a third party in the Civil Procedure Rules, if a court should consider that that is appropriate. It does not mean that they have to be parties to the action, including having to incur all the costs that would be involved. If they are required to give discovery, then so be it.
11. In my view, there is no real prospect of success and the application is refused.
ORDER: Application for permission to appeal refused; detailed assessment of the applicant's costs. (Order not part of approved judgment)