Oxonica Energy Ltd v Neuftec Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Peter Prescott QC: |
| Judgment Date | 05 September 2008 |
| Neutral Citation | [2008] EWHC 2127 (Pat) |
| Docket Number | Case No: HC 07 C 00437 |
| Court | Chancery Division (Patents Court) |
| Date | 05 September 2008 |
[2008] EWHC 2127 (Pat)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
PATENTS COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Peter Prescott QC (Sitting as a Deputy Judge)
Case No: HC 07 C 00437
Mr Piers Acland (instructed by Hammonds LLP) for the Claimants
Mr Richard Hacon (instructed by Watson Farley & Williams LLP) for the Defendants
Hearing date : 11 June 2008
APPROVED JUDGMENT
I direct that copies of this version as handed down may be treated as authentic.
How do we interpret a formal commercial agreement if it is ambiguous and we have reason to believe that its draftsman did not have a deep understanding of the relevant law? I think that is what this case is about.
The secret of drafting legal documents was best described by Nicolas Boileau, who was not only a literary critic but a qualified lawyer: “Ce que l'on conçoit bien s'énonce clairement et les mots pour le dire arrivent aisément”. What one conceives well can be stated with clarity and the words to say it come easily. We should all have that framed and displayed on our desks. But too often the opposite precept is followed. Bits of legal boilerplate are bolted together so that it is the words that are allowed to shape the concept instead of the other way round. In that regard the invention of the word processor has worked wonders. Sometimes, I fear, it has dispensed with the 'concept' altogether. Misfortune not infrequently follows.
Those who draft intellectual property licences may learn something from the misfortune that has befallen the parties to this case. They have entered into a licence agreement that contains a crucial phrase which is exceedingly hard to interpret. I have changed my mind several times about its meaning – it is a veritable Necker cube of licence agreements. The result is business uncertainty and costly litigation.
The Issue
I shall call the parties “Neuftec” and “Oxonica”. On 7 December 2001 they signed a Licence Deed. Under this, Neuftec granted to Oxonica an exclusive patent and knowhow licence. Amongst other remuneration Neuftec is entitled to a royalty on sales of what are called Licensed Products. The question I have to decide is: what is meant by “Licensed Products” in that context?
Oxonica contends that it does not have to pay any royalties unless it sells a product in a country where Neuftec has a pending patent application or a granted patent and the claims thereof cover the product in question. Only such a product is a Licensed Product. On this approach, the answer to the question “Does Oxonica have to pay a royalty to Neuftec on this sale?” can vary from country to country. It can also change in time within any particular country e.g. if a patent application leads to a granted patent with narrower claims.
Neuftec ripostes that that is to treat the Deed as a pure patent licence, which it is not. It is also a knowhow licence. The opportunity to use the knowhow exists irrespective of any local patent privileges. It is true that the Deed defines “Licensed Products” in terms of patent claims, but that is just a convenient way of defining the technology in respect of which royalties are payable. Thus the scope of the obligation to pay royalties is uniform and does not depend on the country in which the sale takes place.
Each of those cases is plausible in its way; but each has its own problems.
What Background Material Is Relevant
There is quite a lot of evidence – including copious exhibits – about the events leading up to the signing of the Licence Deed. Quite a bit of it is irrelevant or inadmissible, or concerns propositions that are no longer advanced by counsel.
Needless to say – and absent an application for the rectification of the document, which is not made here – it does not matter what a party thought an agreement meant when he signed it. Nor does it matter what he was negotiating to get. What matters is what the document would convey to a neutral and reasonable person. But no document, nor any other statement made by human beings for that matter, can properly be understood except in its context. Therefore what I have to decide is what the Licence Deed would convey to a reasonable person who has all the background knowledge that would reasonably have been available to the parties in the situation in which they were at the time of the agreement. This knowledge includes everything which would have affected the way our reasonable man would have understood the language of the document. However as already stated it does not include any knowledge of the parties' subjective intentions, or of their previous negotiating positions. (A more flexible approach has been argued for 1, and the boundaries of the latter principle are unclear 2; but I do not consider anything turns on this that is going to help me to decide this case).
That is the modern approach to the interpretation of commercial documents and it was explained by Lord Hoffmann in Investors Compensation Scheme v. West Bromwich Building Society [1997] UKHL 2; [1998] 1 WLR 896,
912–913. I shall revert to that later.The background knowledge that the neutral, reasonable person employs when understanding a commercial document can include a knowledge of the relevant law ( BCCI v. Ali [2001] UKHL 8 at §39, [2002] AC 251 at 269, H.L.). Indeed a person could not properly understand the Licence Deed in this case unless he had a good general knowledge of patent law and international practice in that regard. The problem is that the more of that knowledge he had the more he might be baffled by the document. I shall deal with that later.
I must say something about proof of foreign patent law. For the limited purpose I have in mind the parties do not have to prove it. Increasingly the Patents Court takes judicial notice of patent law in other countries. In this day and age it would be insular not to. So much so, that in Celltech Chiroscience Ltd v. MedImmune Inc [2002] EWHC 2167 (Pat) Jacob J with the consent of the parties tried two questions of US patent law – file wrapper estoppel and argument estoppel, neither of which exists under our domestic law – without needing to receive expert evidence of US law:
So it was that I found myself receiving submissions on US case law just as if I were a US District Judge.
In case it sounds a trifle ambitious, it should be recorded that the judges of the Court of Appeal were unperturbed [2003] EWCA Civ 1008. They did the same thing. Indeed they must have thought there had not been judicial notice enough, for on one point they reversed Jacob J (the Vice-Chancellor and Longmore LJ; Arden LJ, dissenting, would have reversed on both).
Events Leading Up to the Signing of the Licence Deed
Although the history of the previous negotiations is not relevant, as I have said, in the following narrative I shall mention some of those matters all the same. That is because I shall need to deal with a particular argument advanced on behalf of Neuftec.
The Genesis of the Fuel Additives
In 1996 Mr Bryan Morgan started a company called Celox Limited. I should explain at once that Celox was the predecessor in title of Neuftec, the defendant in our case. When I write Celox, please think Neuftec. Celox was interested in fuel catalysts. In December 1999 Mr Ronendra Hazarika became a director of Celox. Mr Hazarika had a background in the motor racing industry. Celox decided to produce an additive for diesel fuel: a catalyst that could be dispersed in the fuel and would reduce fuel consumption and engine emissions.
Celox started to do research. In the periodic table there is a series we used to call the rare earth elements (although we are supposed to call them the lanthanoids now). Anyway, Celox thought the lanthanide oxides might be good for the job. Of those, cerium oxide is the most abundant and therefore, other things being equal, the most attractive. The use of lanthanides as fuel additives had been suggested before but they were known to clog the filters and cause abrasion and blockages in engines.
Celox thought that the way forward would be to use extremely small particles of cerium oxide coated with a lipophilic (oil-loving) substance to make them disperse in the fuel. How to manufacture such particles? It occurred to Celox to approach a nanotechnology company. They had read about one in a trade journal: Oxonica Materials Limited. It was one of those spin-off companies at Oxford. As we shall see, it is now the parent company of the Oxonica in our case. To avoid confusion I shall call it “Oxonica Parent”.
The Proposed Joint Venture
Celox did approach Oxonica Parent and thereafter the parties dealt together on a confidential basis. At that stage Oxonica Parent employed or had access to scientists who knew about nanotechnology. But it lacked general commercial experience (see below) and it has not been suggested that it had any experience of fuel additives or that it had contemplated entering that field before. A joint venture was proposed. Celox's knowledge about fuel additives (and, I dare say, the markets for such additives) would be married to Oxonica Parent's knowledge about nanoparticles. A joint venture company was incorporated. Celox Limited and Oxford Parent were to be 50:50 owners and to share the benefits accordingly. Oxonica Parent's scientists started to do research, adding to the information which Celox had brought.
The International Patent Application
Celox Limited had applied for patent protection in this country on 29 June and 13 September 2000. Those patent applications were withdrawn and were not published but they served as a basis to claim international priority. On 29 June 2001 Celox made an international patent application pursuant to the provisions...
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