Neutral Citation Number: [2002] EWCA Civ 1702
Case No: A3/2002/0721
 
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
MR JUSTICE JACOB
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 28th November 2002

Before :

LORD JUSTICE ALDOUS
LORD JUSTICE DYSON
and 
SIR DENIS HENRY
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Between :

	(1)	MENASHE BUSINESS MERCANTILE LIMITED
(2)	JULIAN MENASHE	Claimant/
Respondent	
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	WILLIAM HILL ORGANIZATION LIMITED	Defendant/Appellant	

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Richard Arnold QC and Benet Brandreth (instructed by Wragge & Co) for the Appellant
Peter Prescott QC and Lindsay Lane (instructed by Laytons) for the Respondent

Hearing dates : 5th November 2002
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JUDGMENT : APPROVED BY THE COURT FOR HANDING DOWN (SUBJECT TO EDITORIAL CORRECTIONS)

Lord Justice Aldous:

1.	Dr Julian Menashe is the registered proprietor of European Patent (UK) No. 0625760 and Menashe Business Mercantile Ltd claims to hold an exclusive licence under the patent.  I will refer to them collectively as Menashe.
2.	That patent relates to an invention entitled ‘Interactive, computerised gaming system with remote control’.  Claim 1, so far as relevant, claims “a gaming system for playing an interactive casino game comprising a host computer, at least one terminal computer forming a player station, communication means for connecting the terminal computer to the host computer and the program means for operating the terminal computer, the host computer and the communication means … characterised in that the terminal computer is situated at a location remote from the host computer …” .
3.	On 26th October 2001 Menashe started proceedings against the William Hill Organisation Ltd for infringement of the patent.  William Hill are the well-known bookmakers.  In the particulars of infringement, Menashe alleged that William Hill had infringed by “supplying and/or offering to supply in the United Kingdom … means relating to an essential element of the invention for putting the invention into effect when the defendant [William Hill] knew at all material times and/or it was obvious to a reasonable person in the circumstances that the said means were suitable for putting and were intended to put the invention into effect in the United Kingdom.”  That is an allegation of infringement pursuant to section 60(2) of the Patents Act 1977.  
4.	William Hill alleged that the patent was invalid.  They admitted that a subsidiary was operating their gaming system alleged to infringe, but they denied that it fell within the scope of the claims of the patent.  In paragraph 7 of their defence they alleged that the gaming system did not have means relating to an essential element of the invention for putting that invention into effect in the United Kingdom.  In essence they alleged that they did not infringe as the host computer was situated outside the United Kingdom in Antigua or Curacao.  
5.	On 22nd February 2002 William Hill applied for determination of a preliminary issue.  The claimants accepted that it would be appropriate for a preliminary issue to be tried, but did not agree the terms of the question that had been put forward by William Hill.  In the end the question ordered to be tried was:
“Is it a defence to the claim under section 60(2) of the Act, if otherwise good, that the host computer and the part of the communication means of the apparatus claimed in the patent are not present in the United Kingdom, but are connected to the rest of that apparatus?”	
6.	That issue was tried upon agreed facts, namely that William Hill operate a gaming system available to punters in the UK who have a computer.  The punters are supplied with a program usually by a CD which turns the punter’s computer into a terminal computer which communicates via the net with a host computer.  It has the properties and carries out the functions of a host computer referred to in the claims, but it is located outside the United Kingdom.  
7.	That preliminary issue came before Jacob J.  In his judgment [2002] EWHC 397, [2002] RPC 47, he concluded that the preliminary issue should be answered in the negative and he so ordered.  Against that conclusion and order William Hill appeal.  
8.	The patent is a European Patent, but is treated as if it was a national patent granted under the Patents Act 1977 (see section 77).  Section 61 of the Act enables the proprietor of the patent to bring proceedings in respect of any act alleged to have infringed the patent.  Infringement is defined in section 60 in this way:
“(1)	Subject to the provisions of this section, a person infringes a patent for an invention if, but only if, while the patent is in force, he does any of the following things in the United Kingdom in relation to the invention without the consent of the proprietor of the patent, that is to say –
(a)	where the invention is a product, he makes, disposes of, offers to dispose of, uses or imports the product or keeps it whether for disposal or otherwise;
(b)	where the invention is a process, he uses the process or he offers it for use in the United Kingdom when he knows, or it is obvious to a reasonable person in the circumstances, that its use there without the consent of the proprietor would be an infringement of the patent;
(c)	where the invention is a process, he disposes of, offers to dispose of, uses or imports any product obtained directly by means of that process or keeps any such product whether for disposal or otherwise.

(2)	Subject to the following provisions of this section, a person (other than the proprietor of the patent) also infringes a patent for an invention if, while the patent is in force and without the consent of the proprietor, he supplies or offers to supply in the United Kingdom a person other than a licensee or other person entitled to work the invention with any of the means, relating to an essential element of the invention, for putting the invention into effect when he knows, or it is obvious to a reasonable person in the circumstances, that those  means are suitable for putting, and are intended to put, the invention into effect in the United Kingdom.
(3)	Subsection (2) above shall not apply to the supply or offer of a staple commercial product unless the supply or the offer is made for the purpose of inducing the person supplied or, as the case may be, the person to whom the offer is made to do an act which constitutes an infringement of the patent by virtue of subsection (1) above.
…”
9.	That section has to be read against the background of section 125 which provides:
“125(1)  For the purposes of this Act an invention for a patent for which an application has been made or for which the patent has been granted shall, unless the context otherwise requires, be taken to be that specified in a claim of specification of the application of the patent, as the case may be, as interpreted by the description and any drawings contained in that specification, and the extent of the protection conferred by a patent or an application for a patent shall be determined accordingly.  
…
(3)  The Protocol on Interpretation of Article 69 of the European Patent Convention (which Article contains a provision corresponding to subsection (1) above) shall, as for the time being in force, apply for the purposes of subsection (1) above as it applies for the purposes of that Article.”
10.	The Protocol on Interpretation is in these terms:
“Article 69 should not be interpreted in the sense that the extent of the protection conferred by a European patent is to be understood as that defined by the strict, literal meaning of the wording used in the claims, the description and drawings being employed only for the purpose of resolving an ambiguity found in the claim.  Neither should it be interpreted in the sense that the claim serve only as a guideline and that the actual protection conferred may extend to what, from a consideration of the description and drawings by persons skilled in the art, the patentee has contemplated.  On the contrary, it is to be interpreted as defining a position between these extremes which combines a fair protection for the patentee with a reasonable degree of certainty for third parties.”	
11.	To complete the legislative background to the appeal it must be noted that section 130(7) of the 1977 Act declares that a number of sections in the 1977 Act, including section 60, “are so framed as to have, as nearly as practicable, the same effect in the United Kingdom as the corresponding provisions of the European Patent Convention, the Community Patent Convention and the Patent Co-operation Treaty have in the territories to which those Conventions apply.”  For the purposes of this appeal the relevant provisions are Articles 25 and 26 of the CPC.  They are in this form:
“ARTICLE 25
Prohibition of direct use of the invention
A Community patent shall confer on its proprietor the right to prevent all third parties not having his consent:
(a) from making, offering, putting on the market or using a product which is the subject-matter of the patent, or importing or stocking the product for these purposes;
(b) from using a process which is the subject-matter of the patent or, when the third party knows, or it is obvious in the circumstances, that the use of the process is prohibited without the consent of the proprietor of the patent, from offering the process for use within the territories of the Contracting States;
(c) from offering, putting on the market, using or importing or stocking for these purposes the product obtained directly by a process which is the subject-matter of the patent.
ARTICLE 26
Prohibition of direct use of the invention
1.	A Community patent shall also confer on its proprietor the right to prevent all third parties not having his consent from supplying or offering to supply within the territories of the Contracting States a person, other than a party entitled to exploit the patented invention, with means relating to an essential element of that invention, for putting into effect therein, when the third party knows, or it is obvious in the circumstances, that these means are suitable and intended for putting that invention into effect.
2.	Paragraph 1 shall not apply when the means are staple commercial products, except when the third party induces the person supplied to commit acts prohibited by Article 25.
3.	Persons performing the acts referred to in Article 27(a) and (c) shall not be considered to be parties entitled to exploit the invention within the meaning of paragraph 1.”
12.	I will come to the detail of the submissions of the parties, but it is convenient at the outset to set out their basic positions.
13.	William Hill submitted that in order to ascertain whether “the means” referred to in section 60(2) is intended to put the invention into effect, it is necessary to decide what the invention is.  As section 125 states, the invention is that specified in the claims as interpreted by the description and the drawings.  In the present case, the invention is the apparatus claimed in claim 1 which includes the terminal computers and the host computer.  For there to be infringement, “the means” must be intended to be combined in the United Kingdom with the other integers of the claimed apparatus thereby “putting the invention into effect in the United Kingdom”.  In essence, they submitted that because the host computer is outside the United Kingdom, the means, the CDs, are not supplied in circumstances where they “are suitable for putting, and are intended to put, the invention into effect in the United Kingdom” as required by section 60(2) of the Act.  
14.	Menashe submitted that the phrase “ for putting, and are intended to put, the invention into effect in the United Kingdom” does not require all the claimed parts of the apparatus to be in the United Kingdom.  In the present case the punters and the terminal computers are in the United Kingdom.  They are supplied with a CD which is a means relating to an essential element of the invention.  It is supplied by William Hill with the requisite state of mind.  The fact that the host computer is outside the United Kingdom does not mean that the invention is not put into effect in the United Kingdom.  
15.	The Judgment –  Having referred to the relevant legislative provisions, the judge set out the submissions of Mr Prescott QC, who appeared for Menashe, and Mr Carr QC, who appeared for William Hill.  He accepted those of Mr Prescott.  He said that “Any other result would be monstrous - allowing a defendant to use supposed cross-border problems to avoid infringement of a system anywhere.”  His detailed reasons were threefold.
16.	The first was contained in paragraph 21 of his judgment:
“21.  First the double reference to the UK.   Mr Carr overlooks the fact that the second reference (into effect in the UK) looks to effect within the UK not use within the UK.   The fact that second reference ("therein") was added during the negotiations is understandable but irrelevant.  All that did was to identify the territory within which the effect was to [be] identified - to make sure that both the supply of the essential means and its effect were within the same territory.   Mr Prescott's second order point is telling - why speak of "putting invention into effect in the UK" if you simply meant "infringe the UK patent."   I can see no purposive construction of the Treaty which would make sense in this context.”
17.	The second upheld Mr Prescott’s submission that William Hill’s case, if right, produced an enormous hole in the internationally agreed rules for infringement.  Mr Prescott’s submission as recorded by the judge was:
“Further says Mr Prescott, if he were wrong there would be an enormous hole in the internationally agreed rules for infringement.   His skeleton argument demonstrates the hole in the following way:

"Take the case of a someone who installs and sells a telecommunications apparatus which straddles the French-German border.  Suppose the patent claim calls for integers A + B.  Both are essential integers.  But A is in France and B is in Germany.  If WH are right, no infringement.  We respectfully submit it obviously would be infringement – else it would offend common sense.  That cannot be what the framers of the Convention intended.  It is not purposive construction.  We could give many other examples, and of great commercial and industrial importance.  For instance, a constellation of satellites, not all passing over the UK at once, and a downlink here."”
18.	Mr Carr’s answer to that submission was set out by the judge:
“17.     Mr Carr realised the force of Mr Prescott's "hole" point.  He sought to answer it by saying that it was a hole which, if the patentee's agent had been more ingenious, could have been plugged.  All the agent had to do was to insert separate claims to the terminal and the host computers.  Mr Carr handed me claims for the terminal and host which, he said, would have done the job.  They took the form "A terminal (host) computer for using in a gaming system [then defined], the terminal computer comprising ….”.   And he answered Mr Prescott's flourish by saying that in the case of the system claim the invention was not put into effect in any one country.”
19.	As to those submissions the judge concluded:
“22.  Next, the hole.  I do not think Mr Carr's answer is either rational or correct.   The patentee's invention is in substance the combination of elements.  It is the system.  To say that a claim to the heart of the inventive concept would not suffice to provide protection is to suggest that patentees should play games with the patent system.   Here the game is to pretend that the invention is a terminal when programmed whereas really the invention is a system.   Moreover the argument is flawed.   It is trite patent law that individual items of a combination may be old or obvious, yet the combination not.”
20.	The third reason, contained in paragraph 24 of the judgment, dealt with Mr Carr’s attack upon the submission of Mr Prescott, accepted by the judge in paragraph 21 of his judgment, that section 60(2) only required an effect within the United Kingdom:
“24.	Finally there is Mr Carr's "uncertainty" argument - that if "effect" meant any effect it was too vague.  Mr Prescott shrewdly noticed a parallel with the Brussels Convention, Art. 5(3).  This confers tort jurisdiction on a court in a Member State where "the harmful event occurred."   If anything that is a vaguer test than "effect" yet it has proved reasonably workable.  In any event, just because there may be borderline cases of difficulty is no reason for not holding that an obvious case falls within the rule.  No businessman would think for moment that the effect of the invention is not within the UK when the whole point of the defendants’ system is to get UK punters to play their system.”
21.	The crux of the judgment was the judge’s conclusion that the words “are suitable for putting, and are intended to put, the invention into effect in the United Kingdom” did not limit the means to that which was intended to put the invention into effect in the sense of put it into a state of effectiveness or use or being implemented, in the United Kingdom.  The relevant words “looks to effect within the UK not use within the UK” (see paragraph 21 of the judgment).  
22.	The Appeal – Mr Arnold QC who with Mr Brandreth appeared in this Court for William Hill, submitted that section 60 of the 1977 Act was confined to acts committed within the United Kingdom.  For support he relied upon the fact that patents are territorial in nature (see Fort Dodge Animal Health Ltd v Altzo Nobel NV [1998] FSR 222) and a passage in my judgment in Plastus Kreativ v Minnesota Mining and Manufacturing Co [1995] RPC 438 at 442:
“The power to make a declaration under section 71 of the 1977 Act is confined to acts within the United Kingdom. The acts referred to are the acts of infringement which are set out in section 60 of the Act. That section makes it clear that infringement only occurs if a person does an act within the United Kingdom without the consent of the proprietor.”
23.	What I said in the Plastus Kreativ case is, I believe, correct, but that statement does not help to resolve the dispute as to the true meaning of the words in the last half of section 60(2) and in particular the meaning of “… to put, the invention into effect in the United Kingdom.”  It was directed at the first territorial limitation in section 60(2) and the only territorial limitation in section 60(1), as was the judgment in the Fort Dodge case.
24.	I believe that Mr Arnold is correct and that “the invention” referred to in section 60(2) is that claimed in the patent (see section 125).  In this case, as Mr Arnold pointed out, the claimed invention is an apparatus.  If so, I believe he is right that the words “to put, the invention into effect” must require the means to be intended to put the apparatus claimed into effect: thereby requiring the claimed apparatus to become effective.  Thus the means, the CDs, must be suitable for putting and be intended to put the claimed apparatus in a state of effectiveness, essentially to put into an infringing state in the United Kingdom.  
25.	That construction is supported by the purpose of section 60(2).  It is intended to extend the right of a patentee to prevent what are called the direct infringing acts of section 60(1) to include also the indirect infringing acts of section 60(2).  That is supported by the Records of the Luxembourg Conference on the Community Patent 1975 which shows that the word “therein” in Article 26(1) was inserted to clarify paragraph 1 “to the effect that it was prohibited to offer or supply the means referred to for using the invention within the territories of the Contracting States”.  Thus the Committee contemplated that Article 26(1) was concerned with means which were essential for the use of the invention and that both the supply of the means and the use should take place in the relevant territories.  The construction proposed is also borne out by the headings to Articles 25 and 26 which both state that the Articles are concerned with “Prohibition of … use of the invention”.  If Article 26(1) had been concerned with effect, then I would have expected the heading to that Article to have been different to that in Article 25.
26.	If there were doubts as to the purpose of Article 26 some light is thrown upon it by the other language versions which suggest that the Article is concerned with implementation not effect:
“French: “de mise en oeuvre, sur ce territoire, de cette invention”; 
German: “zur Benutzung der Erfindung in diesem Gebiet”;
Italian: “per utilizarre, in tale territorio, l’invenzione”;
Spanish: “para llevarla en efecto en dicho territorio”;
Portuguese: “para executar, nesse territόrio, a referida invencão”.”
27.	Section 60(3) also suggests that section 60(2) is concerned with means for implementing the invention.  This section removes from the ambit of section 60(2) the supply of a staple commercial product except where the supply is for the purpose of inducing an infringing act.  Recourse to Article 26(2) makes it clear that what is contemplated by use of the word ‘infringement’ in section 60(3) is a direct act of infringement, namely one falling within section 60(1).  If so, it is likely that the draftsman believed that section 60(2) was concerned with means intended to put the invention into an infringing state.  To construe section 60(2) so as to extend it to cases where an effect occurs would be inconsistent with that belief.
28.	I do not find the judge’s reasons in paragraph 21 (see paragraph 16 above) of his judgment convincing.  The reason why the draftsman adopted the words “putting the invention into effect in the United Kingdom” was that those words were used in Article 26.  The word “infringement” does not appear in Articles  25 or 26.  In my view the judge appears to have overlooked that section 60(2) is concerned with putting something, the invention, into effect.  It does not look to something which merely has an effect within the United Kingdom.
29.	I do not consider it appropriate to introduce through section 60(2) the concept of infringement by supplying means which merely have an effect in the United Kingdom.  As Mr Arnold pointed out, the effect could be economic, physical or perhaps in some cases, emotional.  The judge’s recourse to the Brussels Convention was not helpful as that is concerned with where the effect of an event is felt, whereas the judge’s construction is concerned with the effect of a invention.  Mr Prescott pressed into use the phrase a “technical effect”, whatever in this context that may be.  There is in my view no basis for introducing into the definition of infringement that the supply of a section 60(2) means must have an effect.  It must put something, namely the invention, into effect.
30.	I suspect that the reasoning of the judge was influenced, at least in part, by the hole that he envisaged that William Hill’s construction made in a patentee’s rights.  He said it was monstrous to allow a defendant to use cross-border problems to avoid infringement.  Mr Arnold accepted that on his argument in a case like the present, the patent would not be infringed in any country.  That does produce a hole.  However, he submitted that even if there was a hole in this case, it was not a hole which would appear with appropriately drafted claims.  He submitted that claims could have been drafted that would have protected the inventive concept.  He is of course right that the claims could have been drafted differently so as not to require both host and terminal computers, but that would only in part fill the hole.
31.	The judge’s view that there was a hole was derived from the attitudes that the parties adopted before him.  It seems that the parties accepted before the judge that if the words “to put the invention into effect in the United Kingdom” meant “to put the invention into effectiveness” in the sense of being suitable for use or being actually used, then there was no infringement.  The reason being that the host computer was outside the United Kingdom.  To my mind that conclusion does not follow from the fact and Mr Prescott in this Court submitted that it did not.
32.	The claimed invention requires there to be a host computer.  In the age that we live in, it does not matter where the host computer is situated.  It could be in the United Kingdom, on a satellite, or even on the border between two countries.  Its location is not important to the user of the invention nor to the claimed gaming system.  In that respect, there is a real difference between the claimed gaming system and an ordinary machine.  For my part I believe that it would be wrong to apply the old ideas of location to inventions of the type under consideration in this case.  A person who is situated in the United Kingdom who obtains in the United Kingdom a CD and then uses his terminal to address a host computer is not bothered where the host computer is located.  It is of no relevance to him, the user, nor the patentee as to whether or not it is situated in the United Kingdom.  
33.	If the host computer is situated in Antigua and the terminal computer is in the United Kingdom, it is pertinent to ask who uses the claimed gaming system.  The answer must be the punter.  Where does he use it?  There can be no doubt that he uses his terminal in the United Kingdom and it is not a misuse of language to say that he uses the host computer in the United Kingdom.  It is the input to and output of the host computer that is important to the punter and in a real sense the punter uses the host computer in the United Kingdom even though it is situated in Antigua and operates in Antigua.  In those circumstances it is not straining the word “use” to conclude that the United Kingdom punter will use the claimed gaming system in the United Kingdom, even if the host computer is situated in, say, Antigua.  Thus the supply of the CD in the United Kingdom to the United Kingdom punter will be intended to put the invention into effect in the United Kingdom.
34.	Mr Arnold put forward two reasons why such a construction of section 60(2) was not correct.  First, he submitted that such a construction would mean that direct infringement by use would occur and that infringement by use had not been alleged.  That may be because Menashe have no need to litigate against users, but in any case that submission does not provide a reason to reject the construction.  Second, he reminded us that section 125 confined the invention to that which was claimed.  In this case that included a host computer having certain functions and features.  It was, he submitted, necessary that the host computer had to be in the United Kingdom, not the effect of it.  I accept the premise of that submission, but not the result.  A punter who uses the William Hill system will be using the whole system as if it was in the United Kingdom.  He will in substance use the host computer in the United Kingdom, it being irrelevant to the punter where it is situated.     
35.	I have reached the same answer to the preliminary question as the judge and for that reason I would dismiss the appeal.  However I am conscious that the route to the answer is different.  
Lord Justice Dyson:
36.	I agree.
Sir Denis Henry:
37.	I also agree.