EP (UK) 1,048,609 B1, In the matter of the Patents Act 1977 [2005] EWHC 2240 (Pat)

Case No CH4/2005/APP/0429[2005] EWHC 2240 (Pat)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
PATENTS COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 21/10/2005
Before
THE HONOURABLE MR JUSTICE KITCHIN
IN THE MATTER OF the Patents Act 1977 AND IN THE MATTER OF EP (UK) 1,048,609 B1 in the joint names of Mr Hughes and Mr Paxman AND IN THE MATTER OF a reference under section 37(1) of the Patents Act 1977
Hearing Hearing dates: 6 October 2005
Mr U. Staunton and Mr P. Acland (instructed by Lupton Fawcett) for the appellant
Mr G. Fernando (instructed by Walker Morris) for the respondent
Judgment

The Hon. Mr. Justice Kitchin :

[1]This is an appeal from a decision of Mr. Probert, the hearing officer acting for the comptroller, whereby he struck out a reference under s.37 of the Patents Act 1977 ("the Act") in respect of patent EP(UK) 1 048 609 B1 ("the Patent").[2]The Patent relates to a new type of drinks cooler and is jointly owned by two proprietors, Mr. Paxman (the appellant and applicant) and Mr. Hughes (the respondent). Unfortunately, Mr. Paxman and Mr. Hughes have fallen out and cannot agree on how to exploit the invention. Accordingly, in January 2005, Mr. Paxman commenced these proceedings and filed a statement of grounds in which he asked the comptroller to make an order permitting him to grant licences to certain specified third parties to make and supply drinks coolers under the Patent.[3]On 4 March 2005 Mr. Hughes filed a counter-statement in which he opposed the proceedings and contended that the comptroller had no jurisdiction to make the order sought on essentially three grounds: a) the terms of the order sought would require an extra-territorial jurisdiction which the comptroller does not have; b) on the proper interpretation of s.36 and s.37 of the Act the comptroller has no general jurisdiction to permit a co-proprietor to grant commercial licences to third parties contrary to the wishes of another co-proprietor; c) Mr. Paxman's fiduciary duties as a company director prevented him from doing any of the things he was asking the comptroller to authorise or permit him to do.[4]Mr. Hughes requested that these objections be determined as a preliminary issue. Accordingly, a hearing took place before the hearing officer on 25April 2005. By a written decision dated 23 May 2005 (BL O/143/05) the hearing officer decided, in summary: a) the comptroller has no jurisdiction to order a licence in respect of a foreign patent and that, if he declined to strike out the proceedings, Mr Paxman would need to amend his statement of grounds to make it clear that all aspects of the relief sought are confined to the United Kingdom; b) section 37 of the Act does confer on the comptroller a jurisdiction to determine whether a licence should be granted to a third party in circumstances such as those of the present case; c) nevertheless, the order sought could not be made because to do so would inevitably result in Mr. Paxman acting in breach of his duties as a company director.[5]Accordingly, the hearing officer struck out the proceedings.[6]On this appeal Mr. Paxman contends that the hearing officer was wrong to conclude that an order of the kind sought would inevitably mean that Mr. Paxman was acting in breach of his duties as a company director. By a respondent’s notice, Mr. Hughes contends that the hearing officer fell into error in failing to find that the jurisdiction under s.37 of the Act could never be triggered on the facts of this case. Neither party has disputed the finding of the hearing officer summarised in paragraph 4(a) of this judgment.

Background

[7]The Patent relates to apparatus for cooling drinks before they are dispensed. In order to serve drinks at a temperature below about 5 degrees centigrade it is necessary to use a refrigeration unit (described by Mr Paxman as a “trim cooler") situated close to the dispenser, typically under the bar. Conventional coolers suffer from the drawback that they use large fans to cool condenser elements. As a result, the cooler units are large, they consume large amounts of power and they also generate unwanted heat in the bar area.[8]The invention disclosed and claimed in the Patent is a trim cooler which does not require a fan to cool the condenser. As a result, the unit is relatively small and can be positioned under a bar without any significant loss of storage space. Furthermore, it does not generate unwanted heat.[9]The invention was devised in about December 1998, an application for the Patent was filed on 25 April 2000 and the Patent was granted on 2 May 2003. It claims priority from GB application 9909216, filed on 22 April 1999.[10]So much is not in dispute. There is, however, a substantial dispute as to the circumstances surrounding the creation, ownership and development of the invention.[11]Mr Paxman’s case may be summarised as follows. The invention was devised by Mr Paxman. In 1999, Mr. Hughes offered to pay Mr. Paxman's costs of obtaining the Patent. There was never any formal agreement between the parties but Mr. Paxman understood that the payment was by way of a loan and that he would reimburse Mr. Hughes at a later date. The costs incurred were paid by a company owned by Mr Hughes called V.M. Fabrications Ltd. ("VMF").[12]In about May 2002, Mr. Hughes approached Mr. Paxman and suggested that the Patent be assigned into their joint ownership. Mr. Paxman agreed to the suggestion on the understanding that Mr. Hughes would continue to pay the costs associated with the Patent. By an assignment dated 1 July 2002, the Patent was duly assigned by Mr Paxman to Mr. Paxman and Mr. Hughes jointly.[13]In about January or February 2003, Mr. Hughes suggested forming a company to sell trim coolers within the scope of the Patent (“patented trim coolers”) and Mr. Paxman agreed. The proposal was for the new company to be owned in equal shares by Mr. Paxman and Mr. Hughes and jointly run by them. It was agreed that all sales of patented trim coolers would be made through this company, whoever had manufactured them.[14]At this point I should say that it was submitted on behalf of Mr. Paxman during the course of the appeal that the extent of any agreement was strictly limited and amounted to no more than an agreement in principle, but leaving so many matters unsettled that the agreement was incomplete and so not binding. I will return to this point in considering the first issue to be determined on the appeal.[15]In February 2003, Trim Cool Limited (“Trim Cool") was incorporated as the joint venture vehicle. Mr. Hughes and Mr. Paxman were appointed as directors. Two subscriber shares were issued, both of which are held by Mr. Hughes. No formal shareholders' agreement was ever discussed or agreed in relation to Trim Cool.[16]Thereafter Trim Cool engaged in correspondence with brewers in relation to marketing of the patented trim coolers and, as a result, approximately 50 prototypes were sold. These sales were for the purpose of enabling breweries to trial the products with a view to placing large future orders. All such sales were not effected by Trim Cool but by a company called Eurosecure Ltd. ("Eurosecure") which is a wholly owned subsidiary of VMF.[17]Mr. Paxman contends that he was not consulted at any time about and had no prior knowledge of the sales being passed to Eurosecure and would not have consented if he had known of the true situation. When he discovered what was happening the relationship between him and Mr. Hughes began to deteriorate. Further, Mr. Paxman contends that all proceeds of the sales were retained by Eurosecure and that Trim Cool has not received any trading income since its incorporation.[18]Mr Paxman also contends that no agreement was ever reached about a long term manufacturer of patented trim coolers. In particular, it was never agreed that the products would be made by VMF, a company which Mr Paxman considers would not have the expertise or experience to manufacture to the standards required by the large breweries.[19]Mr Paxman does, however, know of a company which he believes does have the expertise to manufacture the patented trim coolers. It is a company called Celli SpA (“Celli”) and is said to be a manufacturer of drinks dispensing equipment used by major brewers and soft drinks manufacturers throughout the world. This is the business which Mr Paxman seeks to licence under the Patent. He also seeks a licence permitting the sale of patented trim coolers by a company called Brewfitt Limited (“Brewfitt”), which is owned by his brother.[20]The case advanced by Mr Hughes in his counter-statement is very different. He says that in about 1998 he and Mr Paxman entered into an agreement (“the Cooler Project Agreement”) to develop and market a new drinks cooler and that the invention of the Patent was made pursuant to this agreement. Mr Hughes also contends that the following were terms of the Cooler Project Agreement: a) in the event that the project was successful and a marketable product was developed, that VMF would have, amongst other things, an exclusive perpetual royalty-free worldwide licence to make products in accordance with the Patent; b) in the event that the project was successful, a marketable product was developed and a firm order secured for the product, a company would be formed to market and sell the product which company would be jointly owned and controlled by Mr. Hughes, acting on behalf of VMF, and Mr. Paxman; c) that the company to be formed to market and sell the product would have an exclusive, perpetual, royalty-free worldwide licence to market and sell the product; d) that Mr Hughes (acting on behalf of VMF) and Mr. Paxman would receive a return on their respective investments of time (on the part of Mr. Paxman) and money (on the part of Mr. Hughes and VMF) by way of an equal dividend from the company to be formed to market and sell the product, such dividend to be derived from the profits made on sale.[21]Needless to say all these matters are disputed by Mr. Paxman. As I have indicated, his position is that no agreement was ever reached about the manufacture of patented trim coolers or that Trim Cool would have an exclusive license.[22]In his counter-statement Mr. Hughes also advances an alternative case, namely that in or about February 2003, he and Mr. Paxman agreed that Trim Cool would be formed to market and sell patented trim coolers and that this company would be jointly owned and controlled by Mr.Hughes, acting on behalf of VMF, and Mr. Paxman (the “TCL agreement”). Furthermore all sales of such products were to be manufactured by VMF and all sales were to be made through Trim Cool.[23]Once again these contentions are vigorously disputed by Mr. Paxman. His position is that the TCL agreement was never made and that, in particular, it was never agreed and never would have been agreed that manufacture of patented trim coolers should be undertaken solely by VMF.[24]As a result of these fundamental disagreements between the parties Trim Cool is apparently in a position of deadlock. The parties cannot agree who is to manufacture the patented trim coolers and so Trim Cool has no source of supply. It is a dormant company and has never traded. It has never had an operational bank account and is not registered for VAT.[25]Nevertheless, and as a result of the limited marketing to which I have referred, it seems that there is a potential demand for patented trim coolers. Mr Paxman says that smaller breweries showed interest earlier on, and now larger breweries are keen to place orders. Discussions are approaching an advanced stage and there is a clear indication that once the issue of rights to the Patent has been resolved, turnover derived from patented trim coolers could exceed £1 million in the first year alone. In the light of the deadlock between the parties Mr Paxman launched these proceedings.[26]Against this background I must consider the two issues before me, namely whether the hearing officer was right to conclude that the order sought from the comptroller would necessarily result in a breach by Mr. Paxman of his fiduciary duties to Trim Cool and secondly, the issue of whether or not there is jurisdiction under the Act to grant or permit the grant of licences to third parties in circumstances such as those of this case.

Breach of fiduciary duty

[27]The hearing officer found that Mr. Paxman was seeking authorisation to do something that would inevitably amount to a breach of his fiduciary duties and that the comptroller therefore could not make an order in the terms sought. There are three elements to his reasoning: a) Mr. Paxman and Mr. Hughes agreed that all sales of patented trim coolers would be made through Trim Cool, whoever had manufactured them (decision, paragraph 38); b) Trim Cool had business opportunities (decision, paragraph 45); c) Mr. Paxman was seeking authorisation to do something (that is to say, grant a licence to one of Trim Cool’s competitors) that would inevitably amount to a breach of his fiduciary duty (by, presumably, appropriating those opportunities) and accordingly there was no need for evidence (decision, paragraph 46).[28]It was submitted on behalf of Mr. Paxman that the hearing officer erred in principle in respect of each of these matters. On behalf of Mr. Hughes, it was contended that the hearing officer’s conclusion was entirely correct and ought to be upheld on the further ground that if Mr. Paxman granted a licence of the kind sought then this would inevitably place him in a position in which a) his own personal interest and that of the prospective licensees conflicted with the interests of Trim Cool; and b) he was not be free from outside involvement connected with Trim Cool's affairs; and c) he was not acting bona fide in the interests of Trim Cool.[29]I did not understand there to be any substantial dispute between the parties that, as a director of Trim Cool, Mr. Paxman owes the company the following fiduciary duties: a) a duty not to place himself in a position where there is an actual or potential conflict between his interests and the interests of Trim Cool: Aberdeen Railway Co. v Blaikie (1854) 1Mac. 461; b) as an element of a), a duty to remain free from outside involvement connected with Trim Cool's affairs; c) a duty to act bona fide in the interests of Trim Cool: Re Smith & Fawcett [1942] Ch 304; d) a duty not to appropriate for himself or another party any actual or maturing business opportunity of Trim Cool or any property belonging to Trim Cool: CMS Dolphin v Simonet [2001] 2 BCLC 704.[30]The obligation on a director not to place himself in a position of conflict is evidently a very strict one. In Bhullar v Bhullar [2003] EWCA Civ 424, Jonathan Parker LJ explained it as follows:
"27. I agree with Mr. Berragan that the concept of conflict between fiduciary duty and personal interest presupposes an existing fiduciary duty. But it does not follow that it is a prerequisite of the accountability of a fiduciary that there should have been some improper dealing with property 'belonging' to the party to whom the fiduciary duty is owed, that is to say with trust property. The relevant rule, which Lord Cranworth LC in Aberdeen Railway Co. v Blaikie described as being of "universal application", and which Lord Herschel in Bray v Ford [1896] AC 44 at 51, described as "inflexible", is that (to use Lord Cranworth's formulation) no fiduciary "shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting, or which may possibly conflict, with the interests of those whom he is bound to protect. 28. In a case such as the present, where a fiduciary has exploited a commercial opportunity for his own benefit, the relevant question, in my judgment, is not whether the party to whom the duty is owed (the Company, in the instant case) had some kind of beneficial interest in the opportunity: in my judgment that would be too formalistic and restrictive an approach. Rather, the question is simply whether the fiduciary's exploitation of the opportunity is such as to attract the application of the rule. As Lord Upjohn made clear in Phipps v. Boardman, flexibility of application is of the essence of the rule. Thus, at ibid. p.123 he said: "
Rules of equity have to be applied to such a great diversity of circumstances that they can be stated only in the most general of terms and applied with particular attention to the exact circumstances of each case." Later in his speech (at p.125) Lord Upjohn gave this warning against attempting to reformulate the rule by reference to the facts of particular cases:
"The whole of the law is laid down in the fundamental principle exemplified by Lord Cranworth's statement [in Aberdeen Railway Co v. Blaikie]. But it is applicable, like so many equitable principles which may affect a conscience, however innocent, to such a diversity of different cases that the observations of judges and even in your Lordships' House in cases where this great principle is being applied must be regarded as applicable only to the particular facts of the particular case in question and not regarded as a new and slightly different formulation of the legal principles so well settled." 29. To my mind that warning is particularly apt in the instant case, given that the joint bundle of authorities which has been placed before us contains no less than 23 authorities, including Australian and American authorities. 30. As it seems to me, the rule is essentially a simple one, albeit that it may in some cases be difficult to apply. The only qualification which is required to Lord Cranworth's formulation of it is that which was supplied by Lord Upjohn in Phipps v. Boardman, where he said this (at p.124): "
The phrase 'possibly may conflict' requires consideration. In my view it means that the reasonable man looking at the relevant facts and circumstances of the particular case would think that there was a real sensible possibility of conflict; not that you could imagine some situation arising which might, in some conceivable possibility in events not contemplated as real sensible possibilities by any reasonable person, result in conflict." 31. The strictness of the rule, and the flexibility of its application, was stressed by Lord Wilberforce in the Privy Council decision in New Zealand Netherlands Society etc. v. Kuys, where he said (at p.1129):
"The obligation not to profit from a position of trust, or, as it sometimes relevant to put it, not to allow a conflict to arise between interest and duty, is one of strictness. The strength, and indeed the severity, of the rule has recently been emphasised by the House of Lords in Phipps v. Boardman … It retains its vigour in all jurisdictions where the principles of equity are applied. Naturally it has different applications in different contexts. It applies, in principle, where the case is one of a trust, express or implied, of partnership, of directorship of a limited company, of principal and agent, or master and servant, but the precise scope of it must be moulded according to the nature of the relationship."
[31]I turn then to consider the application of these principles to the present case and will address first the conclusion of the hearing officer that the order requested would inevitably result in Mr. Paxman being in breach of his fiduciary duties to Trim Cool because it would result in him appropriating for himself the actual or maturing business opportunities of Trim Cool.[32]As I have indicated, the conclusion of the hearing officer was founded upon two findings: first, that in February 2003 Mr. Hughes and Mr. Paxman made an agreement that all sales of patented trim coolers would be made through Trim Cool whoever had manufactured them and secondly, that Trim Cool had business opportunities to sell patented trim coolers. Counsel on behalf of Mr. Paxman mounted a considerable attack upon both these findings.[33]As to the first, I have reached the conclusion that, on the face of the pleadings, it is at least arguable that there was no binding contract between Mr. Paxman and Mr. Hughes by which they agreed that Trim Cool would make all sales of patented trim coolers products. There is a fundamental difference between the parties on this issue. Mr. Hughes' case is that it was agreed that Trim Cool would sell all patented trim coolers and these would be manufactured by VMF. But this was certainly not Mr. Paxman's understanding. Further, on Mr Paxman’s case, no shareholders agreement was ever prepared or discussed, the parties had not discussed or agreed how and by whom Trim Cool would be financed, the price that Trim Cool would pay for the products, the royalties that would be paid by Trim Cool, the period of time that the agreement would remain in force or the terms on which the agreement could be terminated. It seems to me arguable that the parties had done no more than reach an agreement on one matter in principle, namely that Trim Cool would sell patented trim coolers and that there was in fact no binding contract between the parties which gave Trim Cool a business opportunity to sell patented trim coolers at all.[34]As to the second finding of the hearing officer, I have reached the conclusion that it cannot be determined at this stage what, if any, business opportunities Trim Cool had. In this regard it seems to me that the following matters are of significance. First, Trim Cool is a dormant company and has never traded. Secondly, there is, for the reasons that I have indicated, some considerable doubt as to whether or not Mr. Paxman and Mr. Hughes ever entered into a binding contract under which Trim Cool had any right to sell patented trim coolers. Thirdly, as found by the hearing officer, Trim Cool was deadlocked because Mr. Hughes and Mr. Paxman were quite unable to agree as to who should manufacture the products. Consequently, Trim Cool has never had a source of supply. I accept that Mr. Paxman has himself contended in his statement of grounds that products in accordance with the Patent have been marketed for several years and that the country's large breweries are keen to place large orders. But I am not satisfied that this necessarily means that Trim Cool itself had any actual or maturing business opportunities.[35]To my mind there is, however, an even more fundamental objection to the conclusion reached by the hearing officer. Even if it be accepted that Trim Cool had certain business opportunities it does not follow that the order sought would result in their appropriation by Mr. Paxman. He seeks an order that he be permitted to grant to a company set up by him a licence to have patented trim coolers made by Celli and sold by Brewfitt. Neither the grant of such a licence nor the production and sale of products under it would necessarily result in the appropriation of any business opportunities which Trim Cool may have had. It seems to me to be perfectly possible that these companies could exploit business opportunities for the sale of patented trim coolers that have nothing whatever to do with any activity undertaken by Trim Cool.[36]I must also deal with the further submission advanced on behalf of Mr. Hughes that Mr. Paxman cannot for his own benefit grant a licence to any other party to make or sell patented products, nor can he be concerned in any such arrangement because to do so would involve placing himself in a position which would conflict with his duties to Trim Cool and would result in him failing to act bona fide in the interests of Trim Cool. In this connection it was contended on behalf of Mr. Hughes that, irrespective of whether or not Mr. Hughes and Mr. Paxman had entered into a binding contract, it was indisputable that Trim Cool had been incorporated for the purpose of selling patented trim coolers, that Mr. Paxman was a director of the company and that the order sought from the comptroller would inevitably mean that Mr. Paxman would be acting in breach of these fiduciary duties to Trim Cool.[37]Once again, I am unable to accept this submission. First, it is at this stage far from clear what precisely the interests of Trim Cool are. For the reasons that I have given, there is a substantial issue as to whether or not Trim Cool has any right to sell patented trim coolers. There is at least arguably no consensus between the parties as to the purpose for which Trim Cool was established. Moreover, Trim Cool is deadlocked and dormant. This potential lack of any agreement between Mr. Hughes and Mr. Paxman as to how Trim Cool was intended to trade and the fact that it appears now to be unable to trade seems to me to raise a real issue as to whether or not Trim Cool has any real business interests or, if it does have any such interests, as to their extent.[38]Secondly, and again more fundamentally, the application made by Mr. Paxman is not founded or in any way based on his position as a director of Trim Cool. Rather, it is founded upon his status as co-proprietor of the Patent. The attempt by Mr Paxman and Mr Hughes to sell patented trim coolers through Trim Cool has apparently foundered. Consequently, Mr Paxman seeks to secure a way to exploit the invention before the opportunity to do so is lost. In this regard it is to be noted that the mere existence of outside involvement does not automatically render a director in breach of fiduciary duty. For example, a director of a company may take a directorship with another company, even though the two companies are competitors in the same field of business. I have reached the conclusion once again that, at this stage of the proceedings, it is impossible to say that the application by Mr. Paxman for the orders sought will necessarily mean that he is placing himself in a position which conflicts with his duties to Trim Cool or that he will be failing to act bona fide in the interests of Trim Cool.[39]For all these reasons I have reached the conclusion that the hearing officer fell into error in concluding that Mr. Paxman is seeking authorisation from the comptroller to do something that would inevitably amount to a breach of his fiduciary duties. These are matters which cannot be determined against Mr Paxman at this stage. They must be determined in the light of the evidence.

Section 37

[40]The hearing officer found that the comptroller does have jurisdiction to order the grant of a licence under a Patent to a third party in circumstances where two or more persons are proprietors of that patent and they have reached a stalemate as to how the invention is to be exploited. It was submitted on behalf of Mr. Hughes that the hearing officer fell into error in reaching this conclusion because he failed to have due regard to the statutory scheme set out in s.36 of the Act.[41]Section 36 of the Act provides, in relevant part, as follows:
"36.-(1) Where a patent is granted to two or more persons, each of them shall, subject to any agreement to the contrary, be entitled to an equal undivided share in the patent. (2) Where two or more persons are proprietors of a patent, then, subject to the provisions of this section and subject to any agreement to the contrary – (a) each of them shall be entitled, by himself or his agents, to do in respect of the invention concerned, for his own benefit and without the consent of or the need to account to the other or others, any act which would apart from this subsection and section 55 below, amount to an infringement of the patent concerned; and (b) any such act shall not amount to an infringement of the patent concerned. (3) Subject to the provisions of sections 8 and 12 above and section 37 below and to any agreement for the time being in force, where two or more persons are proprietors of a patent one of them shall not without the consent of the other or others grant a licence under the patent or assign or mortgage a share in the patent or in Scotland cause or permit security to be granted over it."
I should note that s.36(3) has been amended by s.9 of the Patents Act 2004, but it was agreed between the parties that, for the purposes of this appeal, I should consider s. 36(3) in its unamended form.[42]Section 36(3) is subject to s. 37. This reads, in relevant part:
"37.-(1) After a patent has been granted for an invention any person having or claiming a proprietary interest in or under the patent may refer to the comptroller the question – (a) who is or are the true proprietor or proprietors of the patent, (b) whether the patent should have been granted to the person or persons to whom it was granted, or (c) whether any right in or under the patent should be transferred or granted to any other person or persons; and the comptroller shall determine the question and make such order as he thinks fit to give effect to the determination. (2) Without prejudice to the generality of subsection (1) above, an order under that subsection may contain provision – (a) directing that the person by whom the reference is made under that subsection shall be included (whether or not to the exclusion of any other person) among the persons registered as proprietors of the patent; (b) directing the registration of a transaction, instrument or event by virtue of which that person has acquired any right in or under the patent; (c) granting any licence or other right in or under the patent; (d) directing the proprietor of the patent or any person having any right in or under the patent to do anything specified in the order as necessary to carry out the other provisions of the order."
[43]The submission advanced on behalf of Mr. Hughes ran as follows. Section 36 lays out a tolerably clear scheme. Put simply, a co-proprietor can do acts within the scope of a patent himself but he cannot, without the consent of his co-proprietor, licence third parties. That is the intention of Parliament and that is the scheme to which the comptroller (when exercising a judicial function) should seek to give effect.[44]In the present case, it is said, Mr. Paxman is not being prevented from exploiting his patent. He is permitted under the terms of s. 36(2) to exploit the invention himself or through his agents without having to account to his co-proprietor, Mr. Hughes. There are therefore no grounds for exercising the discretion under s.37.[45]As to the exception set forth in s.36(3), it was submitted that the purpose of the power under s.37 to grant licences is to avoid a situation where, notwithstanding s.36(2), a co-proprietor would be prevented from exploiting his patent at all. The purpose of the licensing power is therefore simply to ensure that s.36(2) operates as intended. So, it was argued, s.37 might be needed where co-proprietors of the invention of a sub-claim cannot rely upon s. 36(2) alone to exploit their invention because they will necessarily exploit the invention of the main claim of which they are not the proprietors and for which they need further permission. In such circumstances one co-proprietor relying on s.36(3) could frustrate the purpose of s.36(2) because he could prevent a co-proprietor of a sub-claim from exploiting his invention.[46]I am unable to accept this submission for a number of reasons. First, I accept that the statutory scheme set out in s. 36(2) and (3) is, in general, to allow a co-proprietor to exploit an invention for himself but not, without the consent of his co-proprietor, to grant a licence under the patent or assign or mortgage a share in the patent to any third party without the consent of his co- proprietor. The general purpose of the provision is, in the words of Robert Walker LJ in Henry Brothers (Magherafelt) v Ministry of Defence [1999] RPC 442 at 449, “to permit what might be called domestic enjoyment”. Section 36(2) is, however, expressly subject to the other provisions of the section including, specifically, s.36(3). This in turn is expressed to be subject to the provisions of ss.8, 12 and 37. These are respectively concerned with patent applications, foreign and convention patent applications and granted patents.[47]Secondly, s.37(1) permits any person having or claiming a proprietary interest in or under a patent to refer to the comptroller the question whether any right in or under the patent should be transferred or granted to any other person or persons. It is apparent from s.37(2)(c) that a licence under a patent is indeed a right in or under the patent.[48]Thirdly, s.37(1) confers upon the comptroller a broad discretion. It applies not just to cases such as the present but also to any case in which there is a dispute as to proprietorship. In such circumstances the comptroller has the power to make such order as he thinks fit including, in cases of co-ownership, the grant of a licence to a third party. So, in Elliott v. Expotech BL 0/189/04 the hearing officer considered that if he were to order joint ownership he would have flexibility to impose conditions and restraints notwithstanding what is contained in s.36 and that his overriding consideration should be what was necessary to give a fair result in all the circumstances. Similarly, in Webb v. McGriskin BL 0/135/00 and BL 0/410/00 it was ordered that a patent should be jointly owned by two inventors and that each of them, as co-proprietors, should have the right to licence out the invention to third parties without the consent of the other.[49]Fourthly, I see no basis in s.36 itself for the limited approach advocated on behalf of Mr Hughes. I accept that, as a starting point, s.36 makes it clear that co-proprietors should not have the right to grant licences to third parties. Nevertheless, this is expressly subject to s.37 which, as I have indicated, gives the comptroller a discretion to order the grants of licences to third parties in an appropriate case. It seems to me entirely consistent with the statutory scheme that, where co-proprietors have reached a position of deadlock and are, as a practical matter, unable to exploit an invention themselves, then one or other should be entitled to make an application to the comptroller to seek to break that deadlock and do so by requesting an order that he be permitted to grant a licence to a third party. On such an application the comptroller would have a wide discretion to make such orders as he considers appropriate to protect the interests of the co-proprietor.[50]It was also submitted that the construction advanced by Mr. Paxman involves by-passing the compulsory licence scheme set out in ss.48 and 49 of the Act. It was submitted that if Parliament had intended there to be a broad power to grant compulsory, commercial licences to third parties, then this power would be found in ss.48 and 49. Like the hearing officer, I am unable to accept this submission. The hearing officer considered, and I agree, that compulsory licenses are granted at the request of third parties. This case is concerned with an application by Mr Paxman, one of the co-proprietors of the patent, who is asking the comptroller to make an order permitting him to grant a licence to a third party so as to permit him the opportunity to reap some benefit from his own invention in circumstances where he is, as a practical matter, unable to work the invention himself. Moreover, as I have indicated, the discretion to grant such a licence should only be exercised upon reasonable grounds and any order made can be framed in such a way as adequately to protect the interests of the co-proprietor.

Conclusion

[51]For the reasons set out in this judgment I have reached the conclusion that the hearing officer was wrong to strike out this reference and that Mr. Paxman's appeal must be allowed. Accordingly the matter must be remitted to the comptroller for directions as to the further conduct of the case. It seems to me to be desirable that Mr Paxman amend his pleading to make it clear not only that he does not seek any relief outside the jurisdiction but also, as submitted to me, that he contends that there was never any binding agreement between the parties.