Foster Wheeler Ltd v E Green & Son Ltd

 

Foster Wheeler Ltd v E Green & Son Ltd

INTELLECTUAL PROPERTY; Patents: CONTRACT

All England Law Reports 1936 - books on screen™

All ER 1946 Volume 1

Preamble

COURT OF APPEAL

LORD GREENE MR, DU PARCQ AND MORTON LJJ

30, 31 OCTOBER, 19 NOVEMBER 1945

Patents – Contract – Covenant by patentees not to sell fuel economisers except exclusively through agents – Patentees becoming contractors to Government

department – Written authority to use patents for service of Crown – Whether authority rendered ineffective contractual obligation with third parties –

“Agents, contractors, or others” – Patents and Designs Acts, 1907–1942, s 29 – RSC, Ord 53A, r 22.

The respondents were the owners of a patent for the manufacture of fuel economisers for use in marine boilers. By an agreement with the appellants, dated 24

January 1939, the respondents undertook to execute all orders received for such apparatus and to sell them through the appellants, at the same time

covenanting not to sell or grant the manufacturing rights of the economisers to any person or corporation in Great Britain other 􀂭 63􀀉 than the appellants. In

January 1945, the Admiralty, acting under the powers conferred on a Government department by the Patents and Designs Acts, 1907–1942, s 29, wrote to the

respondents authorising them to make and sell the apparatus for the service of the Crown. The appellants then brought an action claiming an injunction to

restrain the respondents from selling fuel economisers to any person other than themselves. The action was dismissed on the ground that, on a true

construction of sect 29, the authority conferred on the respondents by the Admiralty had the effect of making inoperative the terms of the agreement between

the parties so far as concerned the making, use, exercise or vending, of the fuel economisers for the services of the Crown. On appeal, the question for the

determination of the court was whether, when a Government department was empowered to act “by themselves or by such of their agents, contractors, or

others as may be authorised in writing by them,” the word “others” included the patentees, ie, the respondents, and so authorised them to use the invention in a

manner inconsistent with the rights of third parties:—

Held – (i) The word “others” read in the context of sect 29 excluded the respondents from the category of persons described in the section as “agents,

contractors or others.”

(ii) the authority given by the Admiralty to the respondents was outside the provisions of sect 29. Such authority, therefore, could not have the effect of

rendering inoperative the terms of the agreement entered into by the respondents with the appellants.

Per cur: The court will always lean against an interpretation of a statute which deprives the subject of rights without compensation.

Notes

Sect 29 of the Patents Act is primarily concerned with the relations between the Crown on the one hand and the patentee on the other. It is not intended to

enable the patentee adversely to affect the rights of other parties. Consequently the patentee is not entitled, in breach of a contract with a selling agent, to sell

patented goods in the service of the Crown, relying on the authority of the Crown as being within the term “others” in sect 29. No compensation is provided

by the statute for third parties in such circumstances, and the courts lean against any interpretation of a statute which deprives a subject of rights without

compensation (see Allhusen v Brooking (1884) 25 Ch D 559)).

As to Use of Patents by the Crown, see Halsbury, Hailsham Edn, Vol 24, pp 532, 533, para 1019; and for Cases, see Digest, Vol 36, pp 690, 691, Nos

1668–1674.

Case referred to in judgment

No-Nail Cases Proprietary Ltd v No-Nail Boxes Ltd [1944] 1 All ER 528, [1944] 1 KB 629, 113 LJKB 353, 170 LT 384.

Appeal

Appeal by the plaintiffs from a decision of Evershed J, dated 4 July 1945, holding that the agreement herein in issue was rendered inoperative by reason of the

authority conferred under the Patents and Designs Act, 1907, s 29, as amended by the Patents and Designs Act, 1942, s 2, which provides as follows:

‘(1) A patent shall have to all intents the like effect as against His Majesty the King as it has against a subject:

Provided that any Government department may, be themselves or by such of their agents, contractors, or others as may be authorised in writing by

them at any time after the application, make, use or exercise the invention for the services of the Crown on such terms as may, either before or after the

use thereof, be agreed on, with the approval of the Treasury, between the Department and the patentee, or, in default of agreement, as may be settled in

the manner hereafter provided. And the terms of any agreement or licence concluded between the inventor or patentee and any person other than a

Government department, shall be inoperative so far as concerns the making, use or exercise of the invention for the service of the Crown…

(2) In case of any dispute as to the making, use or exercise of an invention under this section, or the terms therefor, or as to the existence or scope of

any record or trial as aforesaid, the matter shall be referred to the court for decision, who shall have power to refer the whole matter or any question or

issue of fact arising thereon to be tried before a special or official referee or an arbitrator upon such terms as it may direct. The court, referee or

arbitrator, as the case may be, may, with the consent of the parties, take into consideration the validity of the patent for the purposes only of the

reference and for the determination of the issues between the applicant and such Government department. The court, referee, or arbitrator, further in

settling the terms 􀂭 64􀀉 as aforesaid, shall be entitled to take into consideration any benefit or compensation which the patentee, or any other person

interested in the patent, may have received directly or indirectly from the Crown or from any Government department in respect of such patent …

The facts are sufficiently set out in the judgment of the court delivered by Du Parcq LJ.

Valentine Holmes KC and C Montgomery White for the appellants.

G H Lloyd-Jacob and J N K Whitford for the respondents.

Cur adv vult

19 November 1945. The following judgment was delivered.

All England Law Reports 1936 - books on screen™

All ER 1946 Volume 1

Preamble

DU PARCQ LJ [delivering the judgment of the court]. On 24 January 1939, an agreement was entered into between the plaintiff company (which will be

referred to in this judgment as Foster Wheeler) and the defendant company (which will be referred to as Greens). The agreement contained this clause:

‘Greens during the continuance of this agreement will sell and supply economisers to Foster Wheeler for sale in accordance with the terms of the

agreement and will not knowingly sell nor grant manufacturing rights for any economiser for use in connection with marine boilers to any person or

corporation in Great Britain other than Foster Wheeler except as provided by cl. 8 hereof. Foster Wheeler shall have no right to transfer the benefit of

this provision.’

Cl 8 of the agreement is not material to the question now before us.

Foster Wheeler now appeals against a judgment of Evershed J, dismissing an action in which Foster Wheeler claimed against Greens an injunction to

restrain Greens from doing what they had agreed, by the clause which we have recited, that they would not do. The ground on which the judge dismissed the

action was that a Government department, to wit the Board of Admiralty, had authorised Greens to make, use, exercise or vend a certain patented invention

(which was said to be a constituent part of the economisers in question) for the services of the Crown. Greens are themselves the patentees of the invention,

and their contention, which the judge accepted, was that, on the true construction of the Patents and Designs Act, 1907, s 29, as amended by the Patents and

Designs Act, 1942, s 2, the authority conferred on them by the Admiralty had the effect of making inoperative the terms of their agreement with Foster

Wheeler so far as concerned the making, use, exercise or vending, of the invention for the service of the Crown.

Shortly stated, the question for our decision is this: When sect 29 empowers a Government department to act “by themselves or by such of their agents,

contractors, or others as may be authorised in writing by them” is the word “others” to be read as including the patentee? If it cannot properly be so read, it

must follow that the judge wrongly construed this difficult section, and that the appeal must be allowed. Sect 29 was recently considered by this court, and it

was then held that a Government department might lawfully authorise persons who were making patented articles under a licence from the patentee to make

them on its behalf for the services of the Crown on terms to be agreed between the department and the patentee or settled as provided in the section: see

No-Nail Cases Proprietary Ltd v No-Nail Boxes Ltd. The question now before us is a different one, and is bare of authority. It must be answered, like all

questions of construction, by reading the words of the section as a whole, with due regard to the apparent purpose of the section and to the context in which the

words appear.

The section begins by enacting that “a patent shall have to all intents the like effect as against His Majesty the King as it has against a subject.” This

enacting part of the section, in our opinion, provides the key to the interpretation of the section as a whole. The legislature is concerned with the effect which

letters patent granted by the Crown are to have as against the Crown. Is the monopoly granted to the patentee to avail him as against the Crown, or only as

against his fellow-subjects? Having answered this question in favour of the patentee, Parliament has proceeded, by a proviso, seriously to qualify the right

which it has conferred. Any Government department may do what, done by a subject, would prima facie be an infringement of the patent, namely, make, use,

exercise and vend the invention. But this right is qualified in its turn. First, the department must be dealing with the invention in the permitted manner “for

the services of the Crown.” Secondly, the department must come to an agreement with the patentee (subject to the approval of the Treasury) 􀂭 65􀀉 as to the

terms on which the invention is to be dealt with, or, failing agreement, must abide by such terms as may be settled in the manner prescribed by subsect (2).

Finally, not only may the Government department make, use, exercise or vend the invention “by themselves,” but (to put the matter as briefly as possible) they

may authorise “others” to do the like on their behalf. So far the section has dealt solely with the rights of the patentee as against the Crown. Then, having

disposed of that question, it goes on to provide that the terms of any agreement or licence concluded between the inventor or patentee and any person other

than a Government department shall be inoperative so far as concerns the making, use, exercise or vending, of the invention for the services of the Crown.

The second proviso to subsect (1) is irrelevant to the question which we have to decide, and we need not refer to it.

It is apparent, we think, from the foregoing summary of the material parts of the section that it is primarily concerned with the relations between the

Crown on the one hand and the patentee as such on the other. The patent is to bind the Crown, but Government departments may nevertheless use the patented

invention, not indeed without restraint but sub modo, and subject to the payment of proper compensation to the patentee. The Government department may

under the prescribed conditions itself use the invention notwithstanding the right conferred in general terms on the patentee. It may authorise “others” to do

the same thing, again notwithstanding the rights of the patentee. If due regard be had to the scheme and tenour of the section it is impossible, in our view, to

read it as enacting that a Government department may effectively authorise the patentee himself to use his invention in a manner inconsistent with the rights of

other parties. The concluding words of the first proviso, which affect agreements made with third persons, in substance do no more than limit the power of the

patentee to confer rights on such third persons or to acquire benefits from them in return for such rights. The words follow necessarily upon the earlier part of

the proviso, because the power given to Government departments cannot but diminish what would otherwise be the rights of the patentee. He can only grant

what is his to grant. If he purports to grant more than the proviso leaves him with the power to grant it is reasonable that his purported grant, or any agreement

to grant him benefits in return for it, should be pro tanto inoperative, and this the section enacts.

On this view of the section it is not a matter for surprise that no provision is made for the award of compensation to the third persons concerned. They

know when they enter into agreements with the patentee, that there is this statutory limitation on his rights, and that a Government department may, at any

time, use its powers under sect 29. They cannot complain, therefore, if those powers are exercised with the result that their agreements are modified and their

rights under them diminished. On the other hand, when it is suggested that the section must be read as empowering a Government department to authorise the

patentee himself to use his invention in the prescribed manner, it is a legitimate comment that, if the proposed construction were adopted, rights would be

taken away from third parties without compensation. In this respect the contrast between an authority to the patentee himself, and an authority to any other

person, to use the invention for the services of the Crown is obvious and striking. If the authority is given to another person the patentee cannot help himself.

He must put up with the consequences and content himself with the compensation which the section provides for him. If, however, a Government department

is desirous of giving such an authority to the patentee, he is at liberty to refuse it. There is no power to compel him to become the agent of the Government

department. If he chooses to act in pursuance of the authority which the Government department is minded to confer on him, he need not do so except on

terms which are satisfactory to himself. He can have no claim to statutory compensation, and there is no need for the creation of statutory machinery to ensure

that he will be dealt with fairly. In such circumstances, one would not expect to find that third persons, who find themselves deprived of the benefit of

agreements with the patentee by reason of the patentee’s voluntary submission to the will of the Government department, would be left without compensation.

The court will always lean strongly against an interpretation of a statute which deprives the subject of rights without compensation, and if there be any

ambiguity in the words of the section, this 􀂭 66􀀉 consideration must lend great weight to the contention advanced on behalf of Foster Wheeler.

It was indeed submitted by counsel for the defendant company, Greens, that the section did provide for the award of compensation to those who might be

All England Law Reports 1936 - books on screen™

All ER 1946 Volume 1

Preamble

parties to an agreement or licence between themselves and the patentee, and he contended that subsect (2) empowered the court to deal with claims by such

parties. We cannot so read it. In our opinion the words “In case of any dispute … or the terms therefor” can only be read as referring back to the words “or in

default of agreement” in subsect (1). The “dispute” contemplated is a dispute between the Government department and the patentee. We can find nothing in

the section which can fairly be interpreted as giving jurisdiction to the court to decide any question arising between the department and any other person. The

final sentence of subsect (2) does, it is true, refer to other persons, but only in order to insure that payments to other persons, which may enure for the benefit

of the patentee, shall be taken into consideration in assessing the reward which the patentee is to receive. It is to be noted that this view of the section appears

to have been acted on by the Rules Committee: see RSC, Ord 53A, r 22.

For all these reasons we have come to the conclusion that the authority given to Greens by the Admiralty is not covered by the provisions of sect 29, and

had not the effect of making inoperative any of the terms of the agreement of 24 January 1939. The judge who, as we have said, came to the contrary

conclusion, was influenced to some extent by his interpretation of words used by this court in the judgment given in the No-Nail case. He refers to the

“somewhat wide” terms of the judgment, having in mind, no doubt, the passage in it ([1944] 1 All ER 528, at p 530), in which the wide scope of the word

“others” is emphasised. But, although the word “others” may, in a suitable context, embrace all the world except one person, it must always be read in its

context. When Parliament is regulating the rights of A and B in relation to each other, it is not to be expected that the word “others” will include either A or B,

and in the present case we are of opinion, for the reasons which we have given, that the patentee is, by necessary implication, excluded from the category of

persons described in the section as “agents, contractors or others.”

It is unnecessary to express any opinion as to other points which were argued, or to which allusion was made, at the Bar. It was said on behalf of Foster

Wheeler that Greens could have supplied the Admiralty with the specified economisers without using the patented invention. This allegation was disputed and

it is unnecessary for us either to investigate its accuracy or to consider what effect the fact, if proved, would have on the rights of the parties. It was submitted

for Greens that if the court came to a conclusion adverse to them, the case could be suitably dealt with by awarding damages against them, and that the

injunction prayed should not be granted. In our judgment there is no sufficient reason why Greens should not be restrained from breaking their contract. The

appeal is allowed with costs, and judgment must be entered for the plaintiffs for the relief claimed in the notice of motion with costs.

Appeal allowed with costs. Injunction granted. Leave to appeal to the House of Lords refused.

Solicitors: Bristows, Cooke & Carpmael (for the appellants); Darley, Cumberland & Co (for the respondents).

F Guttman Esq Barrister.

􀂭 67􀀉

[1946] 1 All ER 68