EP (UK) 1,048,609 B1, In the matter of the Patents Act 1977

A reference under section 37 of the Patents Act 1977 may be used by a co-proprietor to seek permission to grant a licence to a third party where co-proprietors are deadlocked and cannot practically exploit the invention themselves. Section 36 establishes the ordinary rule that a co-proprietor may exploit the patent personally but may not grant a third-party licence without consent. That rule is expressly subject to section 37.

The comptroller has a broad discretion to make an order giving effect to the determination, including an appropriately framed licence. A reference should not be struck out on the assumption that the proposed licensing would necessarily breach the applicant’s fiduciary duties. Whether such a breach would occur depends on the evidence.

This was an appeal from a hearing officer’s decision striking out a reference under section 37 of the Patents Act 1977. The patent was jointly owned by Mr Paxman and Mr Hughes. Their attempted joint venture, Trim Cool Ltd, was dormant and deadlocked over the manufacture and sale of patented drinks coolers.

Mr Paxman sought an order permitting him to grant licences to third parties. The hearing officer held that the comptroller had jurisdiction under section 37, but concluded that the proposed order would inevitably place Mr Paxman in breach of his fiduciary duties as a director of Trim Cool. Mr Hughes maintained that section 36 excluded the jurisdiction. The appeal concerned both the alleged inevitable breach of fiduciary duty and the scope of the comptroller’s jurisdiction.

1. Appeal allowed and reference remitted. The hearing officer was wrong to strike out the proceedings. The matter was remitted to the comptroller for directions, with an amendment to clarify that no extra-territorial relief was sought and that Mr Paxman contended there was no binding agreement governing Trim Cool’s exploitation of the patent.
2. The fiduciary rules applicable to directors include duties to avoid conflicts, remain free from outside involvement connected with the company’s affairs, act bona fide in the company’s interests, and avoid appropriating its actual or maturing business opportunities. The conflict rule is strict but must be applied flexibly to the particular facts.
3. It could not be determined at the strike-out stage that Trim Cool had binding rights to sell patented products or any actual or maturing business opportunities. The company was dormant, deadlocked and without a source of supply. Even if it had business opportunities, the proposed licences would not necessarily appropriate them.
4. The application was made by Mr Paxman as co-proprietor of the patent, not as Trim Cool’s director. Outside involvement does not automatically establish a fiduciary breach. Whether the proposed conduct conflicted with Trim Cool’s interests or failed to be bona fide required evidence.
5. Section 36 generally permits a co-proprietor to exploit an invention personally, but prevents a third-party licence without the other co-proprietor’s consent. Section 36(3) is expressly subject to section 37. Section 37 confers a broad discretion to determine whether a right in or under the patent should be granted and expressly permits an order granting a licence. That jurisdiction can be exercised to break a practical deadlock, subject to safeguards.
6. The jurisdiction was not displaced by the compulsory licensing provisions in sections 48 and 49. Those provisions concern applications by third parties, whereas this reference was made by a co-proprietor.

• High Court (Patents Court): allowed the appeal and remitted the reference to the comptroller for further directions.
• Hearing officer acting for the comptroller: struck out the section 37 reference in decision BL O/143/05.