Neutral Citation Number: [2011] EWCA Civ 1337
Case No: A3/2010/1274
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
PATENTS COURT  MR JUSTICE FLOYD
HC08C02241, [2010] EWHC 660 (Pat)
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 22nd November 2011
Before :

LORD JUSTICE WARD
LORD JUSTICE PATTEN
and
SIR ROBIN JACOB
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Between :

	SCHUTZ (UK) LTD.	Appellant	
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	WERIT UK LIMITED & ANR	Respondent	

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Richard MEADE Q.C. and Lindsay LANE (instructed by SNR Denton UK LLP) for the Appellant
Simon THORLEY Q.C. and Tom MITCHESON (instructed by Hogan Lovells) for the Respondent

Hearing dates : 19th October 2011
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Judgment

Sir Robin Jacob (giving the first judgment at the invitation of Ward LJ):  

1.	We have already given two judgments in this case.  The first, [2011] EWCA Civ 303, was in March. We decided that Schütz’s patent was valid and had been infringed.   When it came to the order for costs and damages Werit contended that by reason of the late registration in July 2008 of Schütz’s 1995 exclusive licence, the court was precluded from awarding costs or damages, including damages incurred before amendment in 2006 of s.68 of the Patents Act 1977.  
2.	Following argument about that (which had to be deferred until July) we gave judgment on 29th July, [2011] EWHC Civ 927.   We decided:
i)	That Schütz were entitled to damages from the date of amendment of the Act;
ii)	That the failure to register the 1995 licence (we wrongly called it 1994 in our judgment) was a bar to recovery of costs prior to the date of registration of the licence in July 2008; and
iii)	That Schütz were entitled to costs from the date of registration of the 1995 licence subject to the question of whether it was entitled to costs for the period after 26th November 2009.
3.	That question arises in the following way.  On 26th November 2009 the patentee and Schütz entered into a further exclusive licence.   It was in substantially the same language as the 1995 licence.   On the pleadings Werit was contending that the 1995 licence fell foul of s.44 of the Patents Act 1977 with the result that it had a defence provided by s.44(3).   s.44 was repealed in 2000 but continued to apply to pre-repeal agreements, i.e. those made before 1st March 2000 and thus to the 1995 licence.   By replacing that licence with the new, 2009 licence, any possibility of a s.44(3) defence was thus removed.  It is all a bit ironic because in the end the Judge held that s.44 did not apply to the 1995 licence anyway.
4.	The upshot however was that at the moment the 2009 licence came into force, the 1995 licence came to an end.  Art. 15.1 of the 2009 licence provided:
15.1	The [1995 licence] between Licensor and Licensee .. is hereby terminated at the date of this Licence Agreement.
5.	The 2009 licence was not registered with the Patent Office within six months of its execution.  Indeed it has not been registered to this day.  What appears on the Register of Patents is the following:
17.07.2008	Notice of exclusive licence to [Schütz] dated 17.12.1995.  Form 21 and documents filed on [the patent in suit].
6.	Schütz’s entitlement to sue (by virtue of being an exclusive licensee) from the date of the 2009 licence did not stem from the 1995 licence, but only from the 2009 licence.  On the other hand it became an exclusive licensee in 1995 and has remained so ever since.   We have to decide what the effect of this is.
7.	s.68 (as amended – there is no point here in setting out the unamended form as we did at [8] of the July judgment) reads:
68.   Where by virtue of a transaction, instrument or event to which section 33 above applies a person becomes the proprietor or one of the proprietors or an exclusive licensee of a patent and the patent is subsequently infringed, before the transaction, instrument or event is registered, in proceedings for such an infringement, [the court] or comptroller 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.
8.	It is common ground that (b) does not apply and that the 2009 licence was not registered within 6 months of its date.  It is also common ground that an exclusive licence is a transaction, instrument or event to which s.33 applies.  
9.	Mr Thorley on behalf of Werit contends that Schütz became an exclusive licensee by virtue of the 2009 licence, that the proceedings are for “such an infringement” i.e. for infringements occurring subsequent to Schütz becoming an exclusive licensee and hence the section bites.
10.	Mr Meade for Schütz says not so.  Schütz became an exclusive licensee in 1995 and have always been and remain an exclusive licensee.  One is solely looking for infringements after the time the exclusive licensee became such.   It does not matter that he remained so by virtue of some later agreement.
11.	I accept Mr Meade’s contentions for a variety of reasons.
12.	First as a matter of construction of the section in the light of its purpose but disregarding the fact that it was amended so as to comply with the Enforcement Directive it seems to me to be the more rational meaning.   The purpose of registration of an exclusive licence is to inform the public who has real control over the patent.  Once an exclusive licence has been granted, that person is the exclusive licensee.   At all times since registration of the 1995 licence, i.e. since July 2008, the public have been able to find out, as is the fact, that Schütz is an exclusive licensee.
13.	There is no further purpose to the section or to the requirement in s.33 for registration.   More particularly there is no more detailed statutory purpose.   There is no statutory requirement, either in the Act or the implementing rules for the actual licence to be put on the register.   It is the fact of an exclusive licence, not its details, which is all that matters.   
14.	Now it may be that the terms of the licence itself (I suppose a copy) can be put on the register and made open to public inspection.  Mr Thorley contended that was the case in Finecard v Urquhart Dyke and Lord [2005] EWHC 2481 (Ch.) but I cannot see that it was so on reading the report.   But what is equally clear is that it is not necessary.  A form signed by at least the grantor of the licence is normally enough for the Patent Office to act.   We have an example of the form used to register the 1995 licence.  All it says in response to the heading “give details of the transaction, instrument or event” is:
“Exclusive licence granted to [Schütz] dated 7th December 1995”
15.	Mr Thorley made the point that if the full licence had been put on the register then the public would have been able to see that a s.44 defence might be available (or in a stronger case than the present) would definitely be available.  That to my mind is beside the point.   Such a matter is not the purpose of registration, which, as I say, is merely to tell the public who is the exclusive licensee.
16.	Peter Smith J came to the opposite conclusion in the Finecard case.  He said, elaborating upon and following Pumfrey J in Spring Form v Toy Brokers [2002] FSR 17:
[39]	In my view the purpose of s.68 is to provide a regime whereby people who assert property rights in patents register their rights so as to put the world on notice of their existence.  It seems to me that the wording of s.68 is plain namely that what is required to be registered is the transaction, instrument or event by which a person has become the proprietor or one of the proprietors or the exclusive licensee of a patent.  In other words the instrument or other transaction or event upon which you rely to enforce your rights must be registered. ..
[40]  …. It is odd if the effect of the statute means that the actual documents which gives rise to the rights which are asserted does not have be registered but one which has expired does.
17.	I do not go to Pumfrey J’s decision too – it is very short on the point – almost merely conclusory.
18.	What does not seem to have been pointed out to either Pumfrey J or Peter Smith J is that neither the Act nor the rules requires that the whole document be registered in the sense of being put on the register available to the public.  Once one appreciates that, the whole complexion of the problem changes.  The statutory purpose – of telling the public who is the exclusive licensee, is served by registering the first transaction which makes that person an exclusive licensee.  The oddity to which Peter Smith J refers disappears.
19.	It should be remembered that the sanction of s.68 is potentially severe – we were told that in this case it is of the order of £2m costs which are at stake (first instance and appeal and remembering that Werit took a host of points).  To read the section as imposing a huge sanction for failure to take the bureaucratic step of filing a form to tell the public that which they could already find out from the register is hardly the most reasonable way of approaching the section.
20.	I am reinforced in my view by the Directive. It is undisputed that s.68 must now be construed in the context of that, which was not the case so far as Pumfrey J and Peter Smith J were concerned.  Art. 14 reads:
Member States shall ensure that reasonable and proportionate legal costs and other expenses incurred by the successful party shall, as a general rule, be borne by the unsuccessful party, unless equity does not allow this.
21.	In the July judgment we read “equity does not allow this” as meaning “unfair” (see [24]).  Mr Meade contends that it would indeed be “unfair” to deprive the winner of its costs because it failed to register a transaction which would tell the public no more than it could find out already.   I agree.  That is a further reason why his construction is right.  Indeed if Mr Thorley were right, then I am of the view that s.68 would not comply with the Directive.   A huge sanction for failure to take a merely bureaucratic step.  
22.	I would add that in the course of argument there was some debate about whether s.68 complied with the Directive at all.  Mr Meade said it was not necessary to go into that if his construction were accepted.  Mr Thorley riposted by submitting that there was nothing unfair about depriving a successful party of its costs, because whether or not a transaction was registered lay in his own hands.    I am not convinced that is necessarily so even in the general case.  It would potentially be a quite disproportionate sanction in some cases.  “Equity does not allow this” may not cover failure to register a transaction at all, referring simply to general considerations for instance how the successful party had conducted the litigation – the sort of considerations an English court would give when considering whether a successful party should be deprived of all or part of its costs.  Fortunately it is not necessary to consider this point further here.
23.	Accordingly I would dismiss Mr Thorley’s objections and award Schütz its costs from the time of its registration as an exclusive licensee on 17th July 2008.
Lord Justice Patten : 
24.	I agree.  The requirements of s.68 were satisfied when in July 2008 Schütz registered the 1995 licence.  Since then it has remained on the register as the exclusive licensee of the patent and has at all material times been the exclusive licensee.  The only question is whether the replacement of the 1995 licence with the 2009 licence re-activated the sanction provisions contained in s.68 by making the court’s power to award costs in actions for subsequent infringements conditional upon the registration of the second licence. 
25.	Since the purpose of the register is to identify who is the relevant proprietor or licensee rather than to provide details of the licence, the construction of s.68 advanced by Mr Thorley QC seems to me to require more of an opt-out from Article 14 of the Directive than is necessary to achieve the statutory power of s.68 or which that purpose can justify.
26.	I accept that on a literal construction of s.68  Mr Thorley’s interpretation is a perfectly possible one and it has the support of two High Court judges in the cases to which Sir Robin Jacob has referred.  But, unlike them, we have to read the amended s.68 in a way which is compatible with Article 14.  In my view, this can only be achieved by construing the opening words of s.68 as defining the occasion when the claimant first became the exclusive licensee.  A subsequent change in the identity of the licensee would therefore bring s.68 into play but a mere variation of or change of the licence held by the same licensee would not.
Lord Justice Ward : 
27.	There is no reason not to award Schütz its costs from the date of registration of the 1995 licence to the date of the termination of that licence on 26th November 2009.  The bar imposed by section 68 of the Patents Act 1977, as amended, does not apply.  The issue is whether the registration of the 1995 licence, which remains on the register despite its termination, can protect the costs incurred after its termination.  
28.	I do not find section 68 that difficult to construe.  The literal meaning seems clear enough to me.  Section 68 relates to proceedings for an infringement of a patent which took place after the claimant became the proprietor/exclusive licensee of the patent by virtue of some transaction/instrument/event.  What has to be registered in order to be able to recover costs is “the transaction instrument or event”.  The transaction, instrument or event is the same transaction, instrument or event referred to in the opening words of section 68, namely that transaction, instrument or event by virtue of which the person became the proprietor/exclusive licensee of the patent, the infringement of which takes place after that person has become the proprietor/exclusive licensee.  The use of the definite article, “the”, to which I have given emphasis, is a clear reference back to the use of the same opening words.  Section 68 does not say, “some transaction, instrument or event” nor does it say, “unless the proprietor or exclusive licensee is shown on the register as a proprietor or exclusive licensee of the patent.”   Consequently because the 2009 licence has never been registered Schütz would not, on this literal interpretation of section 68, be entitled to recover costs incurred after 26 November 2009.
29.	I believe my view accords with the judgments of Pumfrey J and Peter Smith J.  It accords with the submission advanced by Mr Thorley QC.  
30.	That may be the literal meaning to be given to section 68 but the crucial question is whether that literal meaning should prevail given the terms of Article 14 of the Enforcement Directive.  I do not see how it can.  Article 14 is in terms, “Thou shalt award costs unless it is unfair to do so”.  Section 68 is in terms, “Thou shalt not award costs unless you have registered your licence.”  The contrast is so stark that I am embarrassed not to have taken the point when we dealt with this matter in July.  I console myself with the recollection that the point was not addressed in the way it is presented to us in this application.  Even now no-one is willing to confront head on what may be the incompatibility with Article 14.  I sense the shivers of apprehension – or is it excitement? – tingling down the otherwise upright spines of those who inhabit the arcane corners of the Patent Office that their practices may be turned upside down.  
31.	I am not even sure whether the full effect of Article 14 struck the Parliamentary draughtsman when he had to amend section 68.  I cannot but disrespectfully wonder whether he did not say to himself when confronted with Article 13, “Well, we can no longer deny you your damages for the failure to register your licence but instead we’ll jolly well make sure you don’t get your costs.  That will remain a good enough incentive to ensure registration.”  I cannot but irreverently wonder whether he triumphantly lifted his eyes from Article 13 as soon as he had decided tit for tat and consequently totally failed to give a thought to Article 14 at all.  But I may do him a grave injustice.  Fortunately, absent full argument, my views must be regarded as tentative and they can be put to the test on another exciting day.  
32.	For the time being, therefore, I am content to agree with my lords that we must give limited effect to the Directive by construing section 68 in what seems to me otherwise to be an artificial way, namely that the court or controller shall not award him costs or expenses unless some transaction or instrument or event by virtue of which he became the proprietor or one of the proprietors or an exclusive licensee of the patent has been registered and remains on the register.