Excel-Eucan Ltd v Source Vagabond Systems Ltd (A Company incorporated in Israel)
| Jurisdiction | England & Wales |
| Judge | Melissa Clarke |
| Judgment Date | 21 November 2019 |
| Neutral Citation | [2019] EWHC 3175 (Pat) |
| Date | 21 November 2019 |
| Docket Number | Claim No: HP-2018-000034 |
| Court | Chancery Division (Patents Court) |
[2019] EWHC 3175 (Pat)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
PATENTS COURT (ChD)
SHORTER TRIAL SCHEME
Rolls Building
New Fetter Lane
London
HER HONOUR JUDGE Melissa Clarke
sitting as a Judge of the High Court
Claim No: HP-2018-000034
Mr Andrew Lomas (instructed by Michael Markham, Solicitor) for the Claimant
Mr Ben Longstaff (instructed by Asserson Law Offices) for the Defendant
Hearing dates: 16 and 17 July 2019
INTRODUCTION
This dispute relates to a carrier for machine-gun ammunition.
Both parties are manufacturers of military equipment. The Claimant (“ Excel”) holds UK Patent Number GB2489116 for an ammunition bag named the “ Link-Tail”, granted on 1 March 2017 (“ GB'116”). The Link-Tail is designed for holding linked rounds of ammunition in the form of bullets mounted onto a long piece of webbing or similar material, such as to allow them to be fed easily into a machine gun.
Below is a photograph of the Link-Tail in use (laid on the ground), from which can be seen the linked ammunition being fed straight from the bag into the gun, with the webbing-side up (Image 1):
Excel entered into a patent licence agreement with the Defendant (“ Source”) on 12 February 2015 in respect of the Link-Tail (“ Licence Agreement”). Pursuant to the Licence Agreement, and up to around the end of 2016, Source manufactured and supplied a slightly amended version of the Link-Tail (the “ Source Ammunition Bag”) to the UK Ministry of Defence (“ MoD”) as part of a large-scale procurement exercise known as Project Virtus (“ Virtus”), and paid Excel a fixed royalty per unit sold on all such sales. It is not disputed that Excel cannot supply into Virtus directly. It can only do so through the MoD prime contractor for Virtus, which is Source. The Licence Agreement contains no positive obligation on Source to supply the bags to the MoD, nor to pay Excel any minimum sum in royalties, nor does it provide any guarantee of minimum sales.
In February 2014 Excel filed and was granted another patent for a further development of the Link-Tail with an added “adjustment strap” (“ GB'562”).
This dispute arose because in December 2016 (and again in February 2017) the founder and director of Excel, Mr Robert Maclean, sent an email to the MoD raising what he perceived as quality issues with the Source Ammunition Bag. Source came to learn of the email, and instructed its lawyers to write to Excel contending that by sending the email, Excel had repudiated the Licence Agreement and this was incompatible with it continuing in force. Accordingly, Source purported to terminate the Licence Agreement.
Meanwhile, Source developed its own design of bandolier-style ammunition bag in early 2017 (“ the 2017 Bag”), which it proposed to supply to Virtus in place of the Source Ammunition Bag, having gone through an MoD evaluation process so to do. Excel claim that the 2017 Bag is based on the Link-Tail and is an immaterial variant of it, falling within the footprint of GB'116. In addition, even if it does not fall within the footprint of GB'116, it has been created by Source by the use of Excel's Licensed Know-How (as defined in the Licence Agreement). In either case, Excel claims, the 2017 Bag is royalty bearing pursuant to the Licence Agreement. Source says that the 2017 Bag is a new creation inspired not by the Link-Tail but by a bandolier ammunition bag used in the British Army in the 1980s, and known as “ the Q33A”.
The below photograph shows the Link-Tail (top) and the Source Ammunition Bag (below) (Image 2).
The below photograph shows the Q33A (left); the Link-Tail (middle); and the 2017 Bag (right); in each case with the top flap open (Image 3):
The Link-Tail and the 2017 Bag, although similar, can be quickly distinguished because the Link-Tail has a zipped opening running down the length of it and the 2017 Bag does not. Nor does the Q33A. The Link-Tail and the 2017 Bag also have a somewhat different shape in cross-section. The Link-Tail is a rounded triangle and the 2017 Bag is flat with side gussets. This can be seen in the photograph below which shows the reverse of the 2017 Bag (left) and the Link-Tail (right) (Image 4):
PROCEEDINGS
In January 2018 Excel issued this claim for:
i) A declaration that the Licence Agreement remains in force and was not repudiated by any action of Excel;
ii) Unpaid royalties and/or damages for breach of contract. Excel no longer asserts any positive case that royalties are outstanding. Instead it seeks damages for breach of contract by, inter alia, the purported wrongful termination of the Licence Agreement;
iii) Contractual costs.
Source defends, and counterclaims for:
i) A declaration that the Licence Agreement was repudiated by Excel and properly terminated by Source. However, very shortly before trial, by an open letter from Source to Excel of 4 June 2019, Source abandoned its case that Excel had repudiated the Licence Agreement and, in consequence, accepted that the Licence Agreement had always been and remained in force. Accordingly it no longer seeks this declaration;
ii) A declaration that the Licence Agreement was not enforceable absent a valid patent. However, Source abandoned this aspect of the counterclaim after service of the Re-Amended Defence and Counterclaim and so no longer seeks this declaration;
iii) A declaration of non-infringement of GB'116 and GB'562 by the 2017 Bag. This remains in issue;
iv) A declaration that the 2017 Bag is not royalty bearing. Source's original case on this point was that only variants that fall within the footprint of GB'116 are royalty bearing, and its case is that the 2017 Bag does not infringe GB'116. However, at trial, Source accepted that as a point of contractual interpretation it is possible for the 2017 Bag to be royalty bearing pursuant to the Licence Agreement, even if it does not fall within the footprint of patent GB'116. Source's case that the 2017 Bag is nonetheless not royalty bearing remains in issue.
In the Re-Amended Reply and Defence to Counterclaim, Excel:
i) Admits that the 2017 Bag does not infringe GB'562;
ii) Maintains that the 2017 Bag is an improvement or alteration of the “Licensed Products” under clauses 3.3 and/or 5 of the Licence Agreement, such as to be royalty bearing.
While these proceedings were afoot, in February 2018 Source commenced revocation proceedings in the UKIPO against both patents, GB'116 and GB'562. In response to the IPO's preliminary indication of invalidity of GB'116 on 16 November 2018, Excel applied unconditionally to amend the claims of GB'116. The parties agree that validity of the patents is not in issue in these proceedings, being a matter for the freestanding applications in the UKIPO. However, they would like this Court to determine the non-infringement issue as against the amended claims in GB'116, and in doing so, for the purposes of that determination only, assume the validity of GB'116.
ISSUES
The parties agree that the issues which remain to be determined by this Court are:
i) whether Source is entitled to a declaration that the 2017 Bag does not infringe the amended claim in GB'116;
ii) whether or not the 2017 Bag is royalty bearing under the Licence Agreement; and
iii) whether Excel is entitled to an inquiry as to damages.
It is common ground that Source bears the burden of proof in respect of the first issue as it seeks a declaration of non-infringement, and Excel bears the burden of proof in respect of issues 2 and 3. The civil standard applies.
Should it transpire that Excel is, ultimately, the successful party in these proceedings, it gives advance notice of a fourth issue, namely: Whether and to what extent Excel can recover the costs of this action and the UKIPO proceedings under the contractual indemnity contained in Clause 10.2 of the Licence Agreement.
WITNESSES
The Claimant's witnesses are:
i) Mr Robert Maclean, the founder and director of Excel and inventor of the Link-Tail. He filed two witness statements and was cross-examined and re-examined. Mr Longstaff for Source expressed no criticism of his evidence and I found him to be a straightforward, professional, credible and reliable witness. I thank him for his attendance at trial to give oral evidence so shortly after the sad loss of his father.
ii) Mr Andy Lynch. He filed a short witness statement and Source elected not to cross-examine him. Accordingly his evidence is not disputed.
The Defendant's witnesses are:
i) Mr Yoki Gill, co-founder and Managing Director of Source. He has filed one witness statement. He intended to attend court to give oral evidence at trial, but unfortunately his mother was taken very seriously ill and so he was unable to do so. Source filed a civil evidence act notice in respect of his evidence. Much of his evidence overlaps with that of Mr Clee, albeit not all of it. Much is also documented in contemporaneous correspondence. However, undoubtedly there are questions that Excel would have liked to have asked him if he had been able to attend, and I have not had the benefit of seeing him give oral evidence, which might have assisted me in assessing his credibility. For those reasons I give those aspects of his evidence which are disputed and not supported by other credible and reliable evidence commensurately less weight.
ii) Mr Charles Clee, a former Colonel in the British Army who now runs a consultancy assisting private clients wishing to work in the defence and humanitarian sectors. He worked with Source to help it become prime contractor for Virtus. He was cross-examined and re-examined. I also found him, like Mr Maclean, to be straightforward, professional, credible...
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