Hughes v Paxman

Section 37 of the Patents Act 1977 gives the Comptroller jurisdiction, on a reference by a person with a proprietary interest, to order a licence under a patent to a third party. The jurisdiction is not confined to determining existing legal entitlement. It may resolve deadlock between co-proprietors and permits the Comptroller to determine appropriate terms. The discretion must be exercised rationally, fairly and proportionately, having regard to all the circumstances. Article 1 of the First Protocol does not bar the jurisdiction. A shareholder cannot rely on an alleged breach of fiduciary duty owed to the company as a third-party objection, and an uncertain informal plan does not itself establish such a breach.

Hughes and Paxman were registered co-proprietors of a patent. Paxman referred to the Comptroller the question whether a licence should be granted to Brewfitt Ltd to exploit patented trim coolers. The Comptroller accepted jurisdiction but struck out the reference on a company-law ground. Kitchin J upheld the jurisdictional ruling, rejected the company-law objection and reinstated the reference.

Hughes appealed. By the time of the appeal, Paxman had resigned as a director of the proposed exploiting company, so the company-law point no longer provided a substantive basis for striking out the reference. The central issue was whether section 37 permitted the Comptroller to order licensing by one co-proprietor to a third party.

1. Disposition. The Court of Appeal unanimously dismissed the appeal. Kitchin J was right to reinstate the reference.
2. Jurisdiction. The statutory scheme distinguishes between a co-proprietor’s own exploitation and licensing to a third party. Under section 36 of the Patents Act 1977, a co-proprietor may exploit the invention for his own benefit, but cannot grant a licence without the consent of the others. Section 37(1)(c), read with section 37(2)(c), gives the Comptroller jurisdiction to determine whether a right under the patent should be granted to another person, including a licence to a third party. The power is not limited to determining pre-existing legal rights.
3. Construction and statutory history. Sections 8 and 12 provide separate but parallel mechanisms for pre-grant and foreign-patent situations. The result should not differ merely because a reference is made before or after grant. Markem v Zipher ([2005] RPC 61) concerned an entitlement dispute and did not determine the co-ownership issue. The construction adopted avoids deadlock that could frustrate exploitation of an invention. A comparable power had existed under earlier patent legislation for about 45 years and had not been removed by the 1977 Act. Florey’s Patent ([1962] RPC 186) illustrated the breadth of the earlier power.
4. Discretion and human rights. The Comptroller’s power is broad, but not arbitrary. The Comptroller must act rationally, fairly and proportionately, having regard to all the circumstances. The earlier compulsory-licensing provisions, including sections 48 and 50 of the Patents Act 1977 as then in force, showed that a discretion to grant a licence on appropriate terms could operate without exhaustive statutory guidance. The possibility of licensing by order is an incident of co-ownership, not a deprivation of property. The reasoning in Wilson v First County Trust (No.2) ([2003] UKHL 40; [2004] 1 AC 816) and Matthews v MoD ([2002] EWCA Civ 773) supported that conclusion.
5. Company-law objection. Any breach of fiduciary duty by Paxman as a director would be a matter between him and Trim Cool. Hughes, as a shareholder, could not raise that alleged third-party right. In any event, the contractual relationships remained disputed, and a general plan that the company would deal in the patented products was too inchoate, without more, to establish a fiduciary breach.
6. Obiter guidance. The statement of grounds was inadequate because it did not set out the proposed licence terms. The court also doubted, without deciding, whether the Comptroller could properly grant one co-owner an uncontrolled general right to sublicense.

1. Court of Appeal (Civil Division): [2006] EWCA Civ 818, 23 June 2006. Dismissed Hughes’s appeal and upheld the continuation of the reference.
2. High Court, Chancery Division (Patents Court): Kitchin J, 21 October 2005. Upheld the Comptroller’s jurisdiction but reversed the company-law strike-out and reinstated the reference.
3. Comptroller: accepted jurisdiction under section 37 but struck out the reference on the company-law point.