Parainen Pearl Shipping Ltd & Ors v Kristian Gerhard Jebsen Skipsrederi AS & Ors

For patent exhaustion, an insurer’s payment for a constructive total loss does not itself put the patented product into circulation or realise its economic value. A sale of the product in the EEA will ordinarily exhaust the patent rights, even if the sale contract restricts the buyer’s use, where the restriction does not prevent resale to a person who may use the product.

Whether extensive work constitutes making a new patented product or repairing the existing product is a fact-and-degree assessment. Relevant considerations include purchaser expectations, the durability and significance of replaced components, whether they embody the inventive concept, and whether the principal components remain. Repair may restore a non-functional product to working order. An implied licence cannot extend to making another patented product.

The claimants owned and managed a vessel incorporating a pneumatic cement discharge system within the claims of a European patent owned by the first defendant. The vessel had previously been owned by a defendant company, but ran aground and was declared a constructive total loss.

The insurers paid compensation and waived any right to take ownership. The vessel was then sold under a memorandum of agreement restricting its use or re-commissioning as a pneumatic cement carrier, but permitting resale before conversion. Successive owners carried out extensive work before the claimants bought the vessel and restored the system.

The issues were whether the system had been repaired or newly manufactured, whether patent rights were exhausted by the insurance settlement or sale, and, alternatively, whether the claimants had an implied licence or could rely on estoppel.

1. Manufacture or repair. The question under section 60(1)(a) of the Patents Act 1977 was whether a new patented system had been made. This was a fact-and-degree assessment informed by United Wire Ltd v Screen Repair Services (Scotland) Ltd [2001] RPC 24 and Schütz (UK) Ltd v Werit UK Ltd [2013] UKSC 16. Repair may involve extensive and expensive replacement of components and may restore a product which is not presently functional.
2. The relevant components were those whose presence or absence affected whether the system fell within the patent claims. The cargo holds, hold bottoms, blow tanks and their inventive arrangement remained. Replaced components were subsidiary, and none embodied the inventive concept. The works therefore constituted repair of the existing system, not manufacture of a replacement system.
3. Exhaustion. The insurance payment compensated substantial destruction and did not put the vessel or system into circulation. Codan never acquired ownership or a right of disposal. The sale to Cemet, however, transferred the remaining economic value of the vessel and system. Clause 18 restricted Cemet’s own use, but contemplated resale without conversion and imposed no restriction on successors in title. It could not prevent exhaustion under the EEA exhaustion doctrine. The defendants’ patent rights were exhausted by the sale.
4. Alternative claims. If exhaustion had not occurred, domestic implied-licence principles were pre-empted in these circumstances by EU exhaustion law. In any event, an implied licence to use a patented product could not authorise making another patented product. The alleged failures to repurchase the vessel or object to its marketing were not representations that the patent would not be enforced and could not support estoppel.
5. The claimants therefore obtained the declarations sought in substance: use of the repaired system was not actionable under the patent.