Wallis v Learonal (UK) Plc [2003] EWCA Civ 98

"I was a proponent of Mr Wallis's process. I was keen, I liked it, I liked the idea. I wanted to make it work for multi layers."

"After yet further testing of the new process by the defendant and at the defendant's instigation the claimant met Mr Whitlaw on the 16th November 1998, at which point the defendant contracted with the claimant on the following express terms: (i) the claimant would be paid a lump sum of £50,000. (ii) the defendant would discharge all fees associated with the international patent application for the process. (iii) the defendant would pay the claimant a royalty of 3% of gross sales world-wide but until such times as the royalty payments reached £30,000 or more annually, the defendant would pay the claimant £30,000 per annum. On or about the 25th November 1998 and acting in part performance of the said contract the defendant discharged the patent attorney's fees for the international patent application. Following the takeover/merger of the defendant company the defendant then averred no contract had been made (due as claimed to an absence of written documentation) and in breach thereof has not made any further payments to or for the benefit of the claimant."

"On 16th November 1998, at the claimant's request, Mr Whitlaw met with the claimant. Mr Whitlaw communicated the concerns expressed by his colleagues to the claimant, explaining that the technology required further development if it were to become commercially attractive to the defendant. The claimant asked Mr Whitlaw what financial arrangement the defendant might be able to offer him in the event that the defendant ultimately did decide the purchase the method. In the light of the difficulties set out in the preceding paragraphs, Mr Whitlaw had not considered the financial aspects of any future agreement. He invited the claimant to disclose what he had in mind. The claimant stated that he had spent some £40,000 on developing the method. He therefore wished to recover that sum plus a profit. In addition, he required a royalty of 3% of gross sales worldwide and a fixed minimum payment of £30,000 per annum for 3 years or until such time as the royalty payments reached £30,000 per annum, whichever was the earlier. Mr Whitlaw informed the claimant that, if the defendant decided to purchase the method, it would not be prepared to consider agreeing to make any minimum annual payment but would be prepared to consider paying a lump sum in the region of £50,000 and a royalty of 3% on gross sales worldwide."

"It is specifically denied that the alleged or any contract was concluded between the claimant and the defendant at the meeting on 16 November 1998."

"A very short meeting, about 15 minutes. Mr Whitlaw said 'Learonal want your patent. How much do you want for it?' I said 'I would like you to make an offer. He said 'I believe you have spent about £40,000 on development, and Learonal will offer you £50,000 up front.' That was more than I expected, and I said 'I will accept that', and I asked about royalties. He said 'We would give you 3 per cent of worldwide sales.' I said 'Is that gross or net?' He said 'On gross sales.' I didn't know what the gross sales would be, but I realised it would be astronomical on a firm of that size, so I said I would accept that. I think he worked some figures out on a piece of paper, and I said 'What would I get until the royalties reached a reasonable amount?' He said '£30,000 a year would be nice, wouldn't it,' and I said 'That will do for me.' That was the minimum estimate of income for the first three years of the process to Learonal, worked out on that. Sorry. (JUDGE KERSHAW): His estimate or yours? (MR WALLIS): No, his estimate. His estimate was, I think it was half a million pounds the first year and then in the next with a million and a half to -- -- -- It worked out at three million pounds in the first three years, of which I would get 3% on, which was £90,000, which split over three years was £30,000 a year, and he said they wanted the patent turning over to them immediately, and I said I had been with Mr Robey, who had helped me with the drafting of the first part of the patent. He had been extremely helpful, not charged me very much money, and I felt it wasn't the right thing to take the business away from him without any warning, and would it be acceptable to Learonal for Mr Robey to carry on the next stage for this process, which was due in a short time and then transfer the rights over to Learonal after that stage. Mr Whitlaw agreed to this, and said Learonal wanted to choose the countries that the international patents would be patented in. We walked towards the door, we shook hands on the deal, Mr Whitlaw said I would be hearing from their solicitors to confirm a meeting."

"This meeting of course was some three and a half years ago, and I will recount the events as accurately as I can. I cannot remember every detail of the meeting because it was such a long time ago. Some things I have a very clear recollection of and some things I am not quite so clear on. The meeting started when I informed Mr Wallis that I had circulated some of my European colleagues and also American colleagues with information about this process, soliciting their input. I had one or two responses I explained to him, and there were one or two reservations which we discussed in terms of the drying step, the applicability to multi layer processing, and the suggested raw material cost."

"That was a very short introduction to the meeting, no more than a couple of minutes. Mr Wallis was then keen that we start to talk about the financial arrangements that might exist between the two companies. Now as far as those facts are concerned, I have not a lot of argument in fact with what Mr Wallis said. My argument is within the context of how they were said. My objective at that meeting was to establish a framework to the kind of terms, the kind of financial settlement that Mr Wallis was looking for, so that I could then take that information to Paul Smith, our managing director. We could then get final approval from our American company, with a view to making a formal contract with Mr Wallis at some time in the future if we had completed successfully all our process evaluations. The first thing that was raised was the question of £180,000 as a one off payment. That question was couched in the terms of 'If we were to make an offer to you of £180,000, would that be of interest?' Mr Wallis replied that he did not want a one off payment. He was interested in an up front sum to cover his initial costs and then an ongoing royalty payment. (JUDGE KERSHAW): He wanted, have I got this right, a down payment to cover his expenses? (A) Yes. (Q) And an ongoing royalty payment? (A) Correct. That's correct, yes. (Q) Yes, thank you. Yes? (A) He said that his initial costs were about £40,000, so it was felt that £50,000 -- -- -- (Q) No, not it was felt. What was said. That is what you have been asked to tell me? (A) I said that if that was the case, then £50,000 would be a reasonable sum, and our standard royalty rate would be 3%. We then came to the question of would there be a minimum royalty payment. Mr Wallis was insistent that there should be a minimum. I said that even at this stage of the negotiations I could not give him any real commitment that we could go to that. I said I would investigate that possibility, and I then discussed with Mr Wallis what kind of minimum payment might be appropriate. We then came to the question of the £30,000 which Mr Wallis raised. Now I have no specific recollection of that sum being mentioned at that meeting. I am not saying that it wasn't, but I'm just saying that I have no specific recollection of it, as hard as I've tried to. Mr Wallis quoted me as saying £30,000 a year seems a nice figure. I don't specifically remember saying that. I may well have done, but even so saying '£30,000 is a nice figure' is not saying that 'I would guarantee you £30,000 for the next three years, irrespective of whether we have any sales or not.' We then came to the question of the patent issue. There was this deadline, which I believe was the 28th of November, which we needed to establish payment to establish the priority date for international applications. Now it was my intention that we needed to establish that priority date if we wanted to have access to the patent in the future, so it was in Learonal's best interests to fund that £4,000 payment as a sign of our ongoing commitment and interest. At the conclusion of the meeting we did, as Mr Wallis suggests, shake hands. That was not in my mind to signify consummation of the deal. It was simply that Mr Wallis was leaving and that was the polite thing to do. I did explain to him that we would have an official agreement drawn up with our solicitors, but I didn't tell him, which I really reproach myself for now, is that I didn't really tell him all the steps that would be involved in that for me needing to get approval from Paul Smith and then from our American parent company, and of course all this was contingent on the successful evaluation of the technology."

"The intention was that we would draw up a legal agreement between the two companies detailing all the payment terms and the patent issues."

"To be honest, I'm not disputing that you said it. I will accept that you said it, but I'm not saying that that was a firm offer of £30,000 a year. (Q) It was a very important meeting this, and at no stage did you say that this was subject to contract, did you? (A) I did not."

"We have been offered a new direct metallisation technique which uses the following application method."

"There is a patent pending for this process and Learonal would acquire the exclusive rights. We have evaluated the process on small scale in our laboratory and found encouraging results, the coverage being good but not perfect but we are sure we can improve this by improving our application technique. At the moment the process is only suitable for double sided boards but perhaps in future with some modification could also be useable for multilayers."

"What do we think of this technology? Is there a market for it? How big might that market be? How much should we charge for this process (raw material costs are claimed to be 0.80/m² laminate)? What is the best way to exploit this technology on a worldwide basis? I look forward to receiving your input and comments."

"I am excited about the new technology."

"Is the silver loaded polymer solvent based? What is the operating temperature during application?"

"I am unable, at this early stage, to comment on your question with regards to the price we could possibly charge for this process. However, I would like to provide you with some information from the market."

"Basically I am astonished that the raw material costs are in the range of £0.08/m² laminate. This seems to be not the big improvement compared to Conductron in terms of material costs."

"I have severe doubts that such a technology can be introduced easily and will be accepted by OEMS. The above made comments may be wrong due to incomplete understanding of the described technology, but in case that the comments are evident, we should carefully check those areas and then reach decisions on how to proceed with the project."

"I think the price is not very attractive. Customers producing only double side are very few."

"I understand from my client, Mr Wallis, that Learonal have agreed to buy the rights to his above referenced patent application concerning printed circuit boards."

"(1) That our proposal to file an international patent application designating all available countries is acceptable, in particular, if any other countries are of interest which are not mentioned on the list, please let me know; and. (2) That Learonal will undertake to meet our charges in respect of this."

"I have spoken to Mr Robey and arranged for him to carry on with the next stage of the patent. As arranged at our meeting on Monday 16 November 1998 when this stage has been completed all the patent rights will be transferred to your company by myself."

"I hope your negotiations with Learonal are progressing."

"Following our meeting last Friday 22nd January and our previous meeting when you told me Learonal was being taken over by another company, I would like to set down a diary of events, from the time tests were carried out by you on my process for through- plating."

"On 16th November 1999 I had a meeting with you to discuss financial arrangements. You said Learonal wanted to use the process and they wanted the sole rights. You asked how much I wanted, and I said I preferred for you to make me an offer. You offered 3% of worldwide gross income from the process which I accepted. You also mentioned that I had previously requested a one off payment to cover earlier development work. You offered £50,000 which I accepted. We then discussed the minimum payment that would be made by you until the process was on the market and reaching reasonable royalties but an exact figure was not decided on."

"You agreed that Learonal should pay for the next stage in the patent and this was duly done. You asked that your patent agents would then take over the next stages which time we have now reached. I realise that this is a difficult time of change for yourself and the company but I'm sure you can understand my concerns as it is now two months since that meeting."

"As agreed the patent should now be transferred either to Learonal or your patent agents. I look forward to receiving your instructions."

"I would like to advise you that no firm offer has so far been made in respecting of purchasing this technology. The indicative offers which Paul Smith and I made were on the basis that Learonal would commercialise this process, which is dependent upon us being satisfied with its technical performance and viability in the market and so far we have not yet reached that decision. If and when we decide to commercialise this process you will receive a formal written offer."

"I remain fully convinced of both the technical and commercial relevance of this technology."

"Look, we have a legally binding agreement", but it may well be that Mr Wallis's explanation is right, that bearing in mind the difficult position of Learonal and Mr Whitlaw and Mr Smith at the time of the merger and takeover, he did not want to upset the apple cart. However, on 14th April 1999 Mr Wallis did write to Mr Whitlaw threatening legal action to protect his interests. What he says in the letter is this: "

"It is reasonable to infer, and I do find by inference, that although himself enthusiastic, Mr Whitlaw was not contemplating making a binding contract on that occasion in the middle of November. Now I appreciate of course that as a matter of law what matters is not what each party intended within his own brain, but what the words each party used would be reasonably understood as meaning by the other. I have heard Mr Whitlaw give evidence and I have described him as among other things, intelligent and articulate. I do not think that he was contemplating deceiving Mr Wallis, and while it would be unrealistic to expect him to remember verbatim everything that he said and heard, I think that he was well capable of expressing himself in a manner which accurately reflected what he had in mind. There was unlikely, I consider, to have been what is commonly called a failure of communication, or misunderstanding. I do not think that he would have inadvertently led Mr Wallis reasonably to believe something that was not actually his intention. Both parties agree that the first stage of that conversation was a suggestion from Mr Whitlaw that Mr Wallis should receive £180,000 flat fee for all the rights in this invention method, and everyone agrees that Mr Wallis turned that idea down flat. He said, and I believe him, that his state of mind was he would do better with royalties. It follows that once that opening parry was over the further discussions were on the basis of a long term arrangement. It is possible, I do not have to reach a conclusion on it, but it is possible that Mr Whitlaw might have been willing to reach a concluded agreement on the basis of a single one off payment based on his own hunch as to the value of the invention and a desire at the very worst to buy it off so that if it was good and the defendant lost the opportunity, at least no competitor would get it. That is possible, but as I say, nobody took that any further. Any long-term agreement, whatever its precise details, had that very quality of involving the long-term. I have alluded already to the lack of any assertion of any kind in the claimant's case about agreement as to how long the proposed benefit of these rights should belong to the defendant, whether the calculation of the sums to be received should be on the basis of a fixed sum until any year in which the revenue from royalties reached or exceeded £30,000 and therefore what the period should be, when the year should start and stop, what the accounting year should be for that purpose, other aspects which it is not suggested that any detail had been reached as to how payments were to be made over £30,000, monthly, quarterly, half-year, yearly, in advance, in arrears. If payments were to be made periodically over a year of say £2,500 a month, whatever it is, what was to happen if during the course of the year royalties exceeded the £30,000. In my judgment, the complexities of a long-term agreement together with the fact that the rejection of a lump sum payment of £180,00, revealed two things: 1) that the parties would want to hammer out the terms of their agreement, and 2) that they knew that there was a lot of money involved. Certainly from Mr Wallis's point of view he was expecting over the years more, considerably more, than £180,000. So the inherent probability is that two such sensible men as these would not expect to conclude a binding agreement without anything being put down on paper, and still less without any legal advice."

"The burden of proof is on the claimant, and I am not satisfied on the balance of probabilities that there was an agreement on all points. I think there was agreement, in the sense that £50,000 was offered or suggested as a sum that would be paid forthwith to cover, with a bit to spare, the expenses of obtaining their present protection (past expenses) and that the defendant would cover the future expenses of obtaining patent protection. There seemed to be no attempt by Mr Wallis, at least on that occasion, to 'up the ante' in respect of the 3%, although he must have had the warning not to accept the first offer ringing in his ears, and this was certainly the first offer of anything other than a lump sum, but the uncertainties about the £30,000 in my judgment had not been agreed, ...."

"When you rang Mr Wallis to ask who was going to pay for the next stage, he told you, did he not, he was still in negotiations with Learonal? (A) Yes, that is right."

"Michael Wallis called. He is still in negotiation with Learonal. (Q) Is that something he told you during the telephone conversation? (A) Presumably, yes."

"I do not find that there was an agreement on something which was plainly and rightly regarded as an important ingredient in the package which was being discussed. I do not think that there was intention in any event to create legal relationships orally, even if contrary to the findings which I have just made, even if there had been accord on all points, and I am not surprised that there was failure to reach agreement on the £30,000 point, because it is not at all clear that the parties were even addressing their minds to the implications of a provision for payment at a pre-determined annual rate being overtaken by the possibility of payments calculated by reference to the defendant's gross sales worldwide of this product or the possibility of this product being further developed by the defendant beyond the capabilities which were being advertised for it by the claimant, which was limited to double sided boards."