Manufacture or repair? Patentee gets that sinking feeling

Sir Richard investigates  

The dispute concerned M/V Nordanvik (“the Vessel”), a bulk cement carrier which ran aground in Oslo fjord in November 2008, causing extensive damage through flooding. The Vessel had on board a system for discharging bulk material from it, which was covered by a patent owned by the first defendant, although the ship was owned by the second defendant: the three defendants were part of the same group.

The insurers of the Vessel accepted the claim, and that it was a write off. Although the insurers could have acquired the title of the Vessel on paying out the insurance compensation monies, they chose not to do so. Instead, the defendants sold the vessel to Cemet Shipping (“Cemet”), who then sold it to Esmenet Shipping (“Esmenet”), who in turn sold it to the claimants (“PPS”). The sale of the Vessel, which was governed by English law, and had a provision which contained restrictions (Clause 18) as follows:-

1. Not to use or recommission the Vessel as a pneumatic cement carrier;
2. If the Vessel is re-sold before conversion to a bulk carrier the defendant has the right of first refusal;
3. The defendants have the right to inspect the Vessel has been decommissioned as a pneumatic cement carrier.

The Vessel was carrying cement at the time of its grounding, and as a result of the flooding the cement had set in various parts of the Vessel causing the various new owners to undertake extensive and costly remedial work. Part of the problem to be solved by the judge was the significance of those components in comparison with the claims of the patent and in particular the invention.

Cards on the table

Claim 1 of the patent used the phrase a system “for unloading powdery cargo”, which was accepted as meaning “suitable for” doing so. The defendants contended that at the time of the first sale (January 2009) to Cemet, the equipment was not capable of performing the method. Therefore, the defendants could not possibly have exhausted their patent rights as the equipment would not fall within claim 1. Arnold J disagreed considering instead that if the system could be repaired without difficulty then the system would be suitable for unloading the cargo. The issue was whether what was done to the system on the Vessel went beyond repair.

Using the alphabet to denote a list of 21 components, which comprised the patented system, these were broken down into 4 categories and assessed (by category as well as by individual components) on the essential nature to the actual claim and the invention itself.

As is to be expected from Sir Richard, he considered in great detail what each purchaser of the Vessel had done to the various alphabetically listed components, reviewed the law as Lord Neuberger had laid it out, and then conducted his own assessment using the factors identified by Lord Neuberger, and in particular the purchaser’s expectations, life expectancy of the components and in particular whether any of those related to the key inventive concept of the patent. He accepted that none of the components replaced did so relate to the key inventive concept: a point he regarded as significant. In addition, his view was that a number of components were not actually replaced but were dismantled, cleaned and reassembled or refitted, which he considered show “repair” rather than “making”. Accordingly, he considered that while the repairs were extensive (and expensive) they were just that: repairs.

The Mysterious Affair of Styles…of judgements

As is usual in the English Courts, the judge then went on to deal with the other issues on the basis that he may be wrong on the issue of repair should the matter go to appeal. He therefore turned to the issue of exhaustion. Having reviewed the law of exhaustion of rights, he considered the key to solving this particular puzzle lay in first sale to Cemet and whether the latter complied with the three obligations in Clause 18 of the sale agreement.

However, before dealing with that issue, the judge first had to contend with the claimant’s argument that exhaustion had occurred when the right to dispose of the Vessel passed to the insurer, a matter governed under Norwegian law. In this, the Oslo District Court had agreed with the claimants in the parallel proceedings, concluding that this was when exhaustion had occurred. In tactfully disagreeing with the Oslo District Court’s conclusion, Arnold J diplomatically pointed out he had the benefit of expert evidence (which the Norwegian Court had not), which established that the insurer had waived its’ right to take title prior to the compensation payment having been made. Accordingly, there was no exhaustion of the defendant’s rights at this point.

That conclusion meant that the sale agreement with it’s three conditions, took on a greater significance in the English proceedings. Of the conditions (as set out above), the second made clear that if the Vessel was re-sold before conversion the defendants had the right of first refusal to purchase it. However, to the extent that they did not exercise this right (and they chose not to) then the Vessel could be sold to a third party as a pneumatic cement carrier. There being no other conditions on the subsequent purchaser meant that the defendants had exhausted their rights in so far as the system on the Vessel was concerned. 

Again, on the basis he may be wrong, the judge next dealt with the issue of implied licence. Here, he concluded first that the domestic law of implied licence is subservient to the EU law of exhaustion of rights. Nevertheless, the judge considered that the relevant provisions of Clause 18 would have been brought to the attention of the ultimate purchaser (i.e. the claimants) prior to purchase, in which case there could be no implied licence. Finally, and for good measure, the judge considered whether the defendant should be estopped from objecting to the claimant’s use of the system but concluded in the defendant’s favour not least because there was no false representation that the defendants would not assert the patent against any subsequent purchaser. However, as the judge concluded that there had been repair, and the defendants had exhausted their patent rights, he did not need to go into this any further.

And then there were none

One by one Sir Richard carefully solves the clues in respect to each issue until finally the answer is revealed. While not quite evoking images of the body in the library lying beside which is a bloodied candelabra, Sir Richard, like Agatha Christie’s famous sleuth, Hercule Poirot, considered each piece of evidence carefully before identifying the murderer or in Sir Richard’s case, arriving at a just decision: even if that did mean he had to make a different finding to that of the Oslo Court and in relation to their own law. Even so, he was diplomatic in his answers as to why he felt able to do so.

While it may be stretching it a little to equate Arnold J with Hercule Poirot there are considerable parallels in methodology and approach and clearly both have ample quantities of “ze little grey cells”.