Adaptive Spectrum and Signal Alignment Inc v British Telecommunications PLC

Contractual interpretation is a unitary and iterative exercise directed to the objective meaning of the parties’ language, viewed with the background knowledge reasonably available to them. Commercial common sense may assist in choosing between genuinely tenable rival interpretations. It cannot alter clear language merely because its consequences appear commercially undesirable.

A contractual exclusion requiring services to be provided “on behalf of” a third party and using that party’s materials applies only where the same services satisfy both conditions. Where “on behalf of” admits rival meanings, the agreement’s commercial purpose and known factual context may determine which meaning objectively reflects the parties’ intention.

ASSIA and BT settled international patent litigation concerning broadband technology through agreements containing reciprocal patent licences. The dispute concerned whether BT’s Virtual Unbundled Local Access service, known as VULA, fell within ASSIA’s licence or was excluded by clause 10.1 because it was provided on behalf of a service provider using a customer modem supplied by that provider.

Falk J held in [2022] EWHC 1707 (Ch) that BT supplied VULA to the service provider, rather than to the end user on the provider’s behalf, and that VULA remained licensed. ASSIA appealed. The central issue was whether “on behalf of” had only ASSIA’s proposed meaning or admitted a rival construction permitting consideration of the settlement’s context, purpose and commercial common sense.

1. Appeal dismissed. Birss LJ held that the phrase “on behalf of” in clause 10.1 admitted two tenable constructions. Nugee LJ agreed for substantially the same reasons. Arnold LJ agreed with both judgments.

2. Contractual interpretation is a unitary, iterative exercise which ascertains the objective meaning of the parties’ language. Commercial common sense assists only where genuine rival interpretations exist. It cannot be weighed against clear language merely because a party may retrospectively appear to have made a bad bargain. The judge had therefore been correct to consider commercial context once the ambiguity in “on behalf of” was identified.

3. The exclusion in clause 10.1 required the same services both to be provided on behalf of a third party and to use materials supplied by or for that third party. Both conditions had to be satisfied, and the exclusion operated only to the extent that they were satisfied. “On behalf of” was wider than agency, but its precise scope depended upon the contract’s proper construction.

4. BT supplied VULA to service providers, enabling them to supply the distinct and more extensive internet-access service to end users. It was nevertheless linguistically possible to characterise the VULA connection as also supplied to the end user on the service provider’s behalf. The competing characterisations created a genuine interpretative choice.

5. The commercial purpose and known context strongly favoured BT’s construction. The agreements sought patent peace, the parties knew that BT offered VULA and that service providers generally supplied customer modems, and the recitals expressly identified pending litigation about VULA. Objectively construed, the parties had not carved that known service out of the settlement licence.

6. The classification of the undisputed activities under the properly construed agreement was a question of contractual application, rather than a finding of primary fact insulated from appellate review. Using the end user’s perspective as a tool when applying the contract involved no error. ASSIA’s dependent fifth ground consequently required no separate determination.

1. Court of Appeal (Civil Division): The appeal was dismissed unanimously. The court upheld the conclusion that VULA fell within the patent licence: [2023] EWCA Civ 451.

2. High Court, Business and Property Courts, Intellectual Property List: Falk J held that BT supplied VULA to service providers rather than to end users on their behalf, and that the service was licensed: [2022] EWHC 1707 (Ch).