Licensing of Co-Owned UK Patents

Introduction

Under UK law a co-owner of a patent is obliged to obtain the consent of all the other co-owner(s) before granting a licence under the patent. Consent given by other co-owners need not be in writing, but written evidence of it is required if the licence is to be registered (in accordance with normal practice). The need for the consent of all co-owners can be circumvented by an agreement signed between all the co-owners that each is entitled on his own to grant a licence.

Of course, it may happen that one proprietor of a co-owned UK patent will grant a licence under the patent without the consent of the other proprietors. UK law is not entirely clear on the consequences of a licence being granted without co-owner consent, and — although there are some old cases under previous legislation which give some indication of how the Courts should approach such eventualities — there is no direct case law on this point.

Summary

To summarise, the UK position is as follows:

i. The starting point is that one co-proprietor cannot grant a licence without the consent of all of the other co-proprietors;

ii. If one co-proprietor were to do so, then it is highly likely that the other co-proprietors would have a claim as against the licensee for patent infringement. On the other hand, the licensee would then be likely to have a claim as against the licensor co-proprietor;

iii. In the event that co-proprietors are in deadlock, then one approach is for an application to be made to the Comptroller of Patents, to request that he settle the terms of a compulsory licence. This is most likely to be successful in cases of deadlock between co-proprietors, or where there is commercial blackmail or other inequitable conduct;

iv. If a licensee finds itself being sued by non-consenting co-proprietors, it may try to argue that no injunction should be granted on equitable grounds, or to rely on an application to the Comptroller as a defence — although the circumstances where either of these approaches will be successful may well be limited;

v. In every case, licensees should check that any proposed licensor has the power to grant the proposed licence. If there is a potential for dispute then that argument must be sorted out — either by consent or through an application to the Comptroller of Patents — prior to entering into any binding licence agreement.

vi. Although there are highlighted herein certain points that might be run if a licensee finds itself sued by non-consenting co-proprietors, they are all difficult arguments and should be considered positions of last resort.

The Rights of Co-Owners — Basic Position

It appears most likely that a license granted by one co-proprietor without consent from all of the others will not prevent the other co-proprietors from enforcing their rights as against the licensee. Thus, the co-owners will be able to obtain an injunction and damages/an account of profits. Furthermore, the licensee will then be highly likely to have a claim for a contribution or an indemnity as against the licensor for breach of an express or implied warranty that he had the power to grant the licence in the first place.

It is most unlikely that the Court would find that it had a discretionary power to determine on equitable grounds that the licence should nonetheless bind the other co-proprietors, leaving the licensee’s rights intact and the proprietors in dispute.

It could be asserted by a co-proprietor who had failed to obtain the necessary consents to a licence that the Court does, based on the wording of the statute, have such power. The intention of the wording, on one possible interpretation, appears to be to regulate the conduct of the proprietors between themselves, leaving the Court with a limited discretionary power to determine an equitable solution when some of the proprietors conduct themselves contrary to the statute.

This is an interesting perspective on the situation but highly likely to be overridden by a belief by the court that the correct approach is as set out above (e.g. the non-consensual co-owners will be able to obtain an injunction and damages/an account of profits from the licensee).

Claims by Co-Proprietors

In considering a potential claim as against a licensee, however, one must bear in mind that the grant of an injunction (against a licensee) is discretionary, and the Court has the power to substitute the payment of damages instead.

Thus, were it to be equitable to do so, the Court might be persuaded to refuse an injunction and instead order damages (in effect a royalty) to be paid to the other co-proprietors. The Court would probably not readily go down this route, but it may arise in certain circumstances — and in particular where the co-proprietors have failed to register their interest in a patent, and the licensee was not aware of their rights.

Dealing with a Deadlock between Co-Proprietors

If the position is that co-proprietors of a patent (or patent application) are unable to agree on how to exploit it, the UK Court of Appeal has recently held (in Hughes v. Paxman) that any co-proprietor may apply to the Comptroller of Patents for a decision on whether a licence should be granted to a third party, and upon what terms.

Thus, if there is a deadlock between co-patentees, then an application to the Comptroller may enable progress to be made.

Applications of this sort are, however, very recent innovations of the Court, and the frequency and terms upon which they will be granted is most uncertain. It is likely that they will only be available where none of the co-proprietors are able to exploit the patent on their own, or where one co-proprietor is seeking to ‘commercially blackmail’ another co-proprietor.

Furthermore, it may be the case that this procedure can be used as a ’shield’ against a claim by the non-licensing co-proprietors against the licensee. In such a case, the licensor co-proprietor may wish to apply to the Comptroller for directions as to the granting of a licence, and then ask to have that case heard by the Court with any infringement action. If the Court were then to take the view that it would be appropriate for a licence to be granted, it will almost certainly refuse the injunction and instead order that a compulsory licence be granted by all co-proprietors, on the basis of such royalty provisions as the Court thinks fit.

For further information please contact Jon Broughton jon.broughton@hlbbshaw.com at HLBBshaw www.hlbbshaw.com in Epping, Essex, UK

The information contained in this alert is provided for informational purposes only and does not represent legal advice. Neither the APLF nor the author intends to create an attorney client relationship by providing this information to you through this message.

 

You might also be interested in the following alerts: