Buchanan (Appellant) v. Alba Diagnostics Limited (Respondents) (Scotland)

An assignment by way of security may encompass future improvements to specified patent rights. A contractual discharge of the assignor’s personal obligations does not cut down property included in the security unless the agreement so provides.

Whether a later invention is an improvement depends on the contractual context. Where the object is to preserve the commercial value of intellectual property, the term receives a broad, commercial meaning. An arm’s-length assignment of improvements is not an unreasonable restraint of trade merely because it is unlimited in time, particularly where it enables intellectual property to secure development finance.

The registered proprietor of a patent for a brake-fluid testing device sued Alba Diagnostics Ltd for infringement. Alba maintained that he lacked title to sue because an earlier security assignation transferred specified patent rights and all improvements to a lender, who subsequently assigned the secured assets to Alba.

The Lord Ordinary and the Inner House held that the later patent was an improvement included in the assignation. They also found no infringement, although that issue was unnecessary once title had been resolved against the proprietor. The Inner House decision was reported at [2001] SCLR 307.

The appeal concerned the effect of the assignation, the restraint-of-trade doctrine, the meaning of “improvement”, and whether leave to appeal was required while a distinct damages conclusion in Alba’s counterclaim remained unresolved.

1. Appeal dismissed unanimously. Lord Hoffmann delivered the leading speech. Lord Nicholls, Lord Hope, Lord Walker and Lord Brown agreed with his reasons.

2. Per Lord Hoffmann, the provisions discharging the assignors’ “obligations” distinguished between the secured property and the personal obligations secured by it. Future improvements formed part of the charged assets. The discharge of personal obligations, including obligations to repay the loan and perform specified acts, did not cut down the security or prevent a future improvement from vesting through the Scots doctrine of accretion.

3. Lord Hoffmann left open whether the obligation conventionally said to underlie accretion was more than a legal fiction. An assignment of future improvements was expressed as a dispositive act and might operate entirely within proprietary rights. The appeal could be decided by construing the particular agreement.

4. Per Lord Hoffmann, the assignment was not void as an unreasonable restraint of trade. A purchaser or secured lender may reasonably require rights in future improvements to protect the commercial value of patent rights. The transaction was an arm’s-length bargain between experienced businessmen, made so that intellectual property could secure development finance. It involved security rather than an outright sale, and repayment would have restored the charged assets. This conclusion accorded with Printing and Numerical Registering Company v Sampson (1875) 19 Eq. 462 and Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269.

5. Per Lord Hoffmann, “improvement” is not a term of art. Its meaning depends on context. Because the clause protected the commercial value of the principal security, it required a broad and commercial construction. The later invention retained the earlier invention’s semi-encapsulation feature and added an arrangement which made the tester more effective and convenient. It was therefore an improvement.

6. Whether an invention amounts to an improvement is a question of degree. Per Lord Hoffmann, an appellate court should not substitute its assessment for that of the trial judge unless an error of principle is shown. No such error occurred.

7. Per Lord Hope, section 40(1) of the Court of Session Act 1988 did not require leave from the Inner House. The Lord Ordinary’s decision finally disposed of every issue in the proprietor’s action. Alba’s unresolved claim for damages was separate and did not prevent the judgment from disposing of the whole merits of that action.

8. Because the proprietor lacked title to sue, the question whether Alba’s device infringed did not arise, and the House heard no argument on infringement.

1. House of Lords: The appeal was dismissed unanimously. The House upheld the conclusion that the later patent was an improvement included in the security assignation. Leave from the Inner House was unnecessary.

2. Inner House of the Court of Session: The court unanimously upheld the Lord Ordinary’s conclusion that the appellant lacked title to sue. It also concluded that Alba’s device did not infringe. The decision was reported at [2001] SCLR 307.

3. Lord Ordinary: Lord Hamilton held that the assignation transferred the relevant improvement and therefore defeated the appellant’s title. He also found that Alba’s device did not infringe, although that finding was unnecessary to dispose of the action.