Scottish Court of Session Decisions

Mr William Frederick Rendall was the joint owner along with Mr Richard Cracknell of the patent rights for the manufacture of refrigerating machines. On 20th April 1893 he entered into an agreement with Messrs D. Stewart & Company, Glasgow, in the following terms:—I, W. F. Rendall, do appoint Messrs Stewart & Company, Limited, sole makers of my patent freezer machine, patent No. 4035, A.D. 1892 (patented in the name of Richard John Cracknell, 50 Finsbury Park Road, Middlesex), and do hereby accept the royalty of 10 per cent. of the money received on each of the machines they sell under this patent.— W. F. Rendall. Witness, James Gourlay.”

A number of machines were made and sold by Messrs Stewart & Company under the patent, and payments were made by them to Mr Rendall and the other joint-owner of the patent by way of royalties.

In 1896 negotiations were entered into between the parties with a view to the sale of the goodwill of the business, &c., by Messrs Stewart & Company to the owners of the patent, who were proposing to form a company for working it. The negotiations fell through, and on 9th December 1896 Mr Rendall intimated on behalf of himself and Mr Cracknell the termination of the agreement of 20th April 1893.

An action was raised by Mr Rendall against Messrs Stewart & Company, in which he claimed, inter alia, an account of the royalties due to him under the agreement.

A further action was raised by Messrs Stewart & Company, concluding for damages for breach of contract in respect of the termination of the agreement.

The pursuers pleaded—“The pursuers having incurred loss, injury, and damage

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through the defender's breach of contract in terminating the pursuers' appointment as sole makers of the said machine, and communicating their specifications and other information, the pursuers are entitled to decree in terms of the petitory conclusion of the summons.”

The defender pleaded—“(3) The defender having been, on a sound construction of the agreement of 20th April 1893, entitled to bring the same to an end at any time, et separatim, having been entitled to bring it to an end in consequence of the fault and breach of said agreement on the part of the pursuers, ought to be assoilzied with expenses.”

On 14th July 1898 the Lord Ordinary ( Kyllachy) pronounced the following interlocutor in both the causes:—“Finds on the just construction of the agreement of 20th April 1893, mentioned on record, that the said agreement is not binding on the pursuer during the whole term of the patent, but that the same is terminable by him on reasonable notice: With this finding appoints the cause to be enrolled for further procedure, and grants leave to reclaim, reserving the question of expenses.”

Opinion.—“In this action I have been pressed to decide in the first instance the question which is raised as to the construction of the agreement of 20th April 1893—I mean the agreement set out on record—by which Mr Rendall, the pursuer in the first action, appointed Messrs Stewart (the defenders in that action and the pursuers in the second) to be sole makers of his patent freezing machine, and accepted the royalty of 10 per cent. on the money received for the machines which Messrs Stewart might sell under the patent.

The question of construction is this. Mr Kendall contends that the licence and monopoly granted by him (and the granting of which constitutes the agreement) was terminable on reasonable notice. Messrs Stewart contend that both the licence and monopoly were for the whole period of the patent, and were not therefore terminable until the patent expired. There is no question of perpetuity. The question is between a right terminable at will, and a right having the same duration as the patent.

I do not know that any of the numerous authorities which were quoted at the discussion throw much light on the point thus raised. The cases which have occurred of agreements indefinite in point of time have all had peculiarities which made them more or less special. I am certainly not able to find established by these cases any legal presumption upon which I can decide the present action.

There are, however, it appears to me, two considerations of a general character which carry one pretty far towards rejecting the idea of a licence and monopoly co-extensive with the duration of the patent. In the first place, if such duration had been intended it would have been easy to have expressed it. I should certainly have expected that if the agreement was intended to be for a term so indefinite, that term would have been expressed. In the second place, the agreement so called is really a unilateral document. It bears to confer certain rights on Messrs Stewart, while at the same time they undertake no counter obligation. They are made sole makers of the patented machine, but they are not taken bound to make any machine, nor is there any definition of the rights of parties in the event of the patentee being dissatisfied with their action or inaction. It appears to me that this makes Messrs Stewart's contention somewhat difficult and not very probable.

It is no doubt true that the agreement although unilateral is not altogether gratuitous. The patentee is to receive 10 per cent. of the gross receipts by way of royalty. But if this be regarded as a counter consideration, it amounts really in fact to a partnership or quasi-partnership, and if that be so, the contract is beyond doubt of a class where, unless the term of duration is specified, the currency is held to be at will.

Altogether, I am of opinion that Mr Rendall is right in his construction of this so-called agreement, and I shall so find. But making that finding I shall continue the cause and grant leave to reclaim, reserving in the meantime the question of expenses.”

Messrs Stewart & Company reclaimed against both these interlocutors.

Argued for reclaimers—This was not a unilateral agreement as was stated by the Lord Ordinary. Though the obligation on them to exert themselves in working the patent was not expressed in the agreement, that obligation was implied— Galbraith & Moorhead v. Arethusa Ship Company, July 9, 1896, 23 R. 1011. Accordingly the agreement was not a mere licence, and the class of cases such as Patmore & Company v. Cannon & Company, July 14, 1892, 19 R. 1004, did not apply. On the fair construction of the agreement it was permanent in its nature, enduring for the currency of the patent. On this understanding the reclaimers had incurred large outlays. It was competent to show that there was consideration for the agreement not actually expressed in it, and the reclaimers were entitled to a proof at large on this and on their other averments as to outlay, &c.— Llannelly Railway Company v. London North-Western Railway Company, 1875, L.R., 7 E. & I. App. 550. Alternatively the reclaimers were entitled to reasonable notice.

Argued for respondent—The contract must be construed by the written agreement, and the actings which followed on it would not alter the conditions. The agreement constituted merely an exclusive licence which was terminable at will—Frost's Patent Law and Practice, p. 372; Ward v. Livesey, 1845, 13 M. & W. 838; Guyot v. Thomson, L.R. [1894], 3 Ch. 388; Heap v. Hartley, 1889, L.R., 42 Ch. D. 461; Patmore & Company, ante.