Elsworth Ethanol Company Ltd and another v Ensus Ltd and others [2014] EWHC99 (IPEC) 3 February 2014.SummaryThe Intellectual Property Enterprise Court (IPEC) has recently rejected a claim that the
Elsworth Ethanol Company Ltd and another v Ensus Ltd and others [2014] EWHC99 (IPEC) 3 February 2014.
Summary
The Intellectual Property Enterprise Court (IPEC) has recently rejected a claim that the company named as patent applicant should have been a different company. The main basis for this claim was that the inventors were de facto directors of the company that should have been named, and so were in breach of their fiduciary duty by naming a different company. The Judge held that none of the evidence relied upon by the Claimants pointed to either of the inventors being de facto directors and thought there were factors which pointed the other way. A claim of breach of contract was also not made out.
Background
The patents and patent applications in question were applied for by Bioconversion Technologies Ltd (BCTL), the fourth defendant. The named inventors were Dr Yazdi and Dr Javed.
In 2002, the second claimant, Mr Bookless, incorporated a company called EECO Limited (which later changed its name to Elsworth Ethanol Company Limited ("Elsworth") in May 2006) as a vehicle to develop his idea relating to the recycling of waste material to produce energy. He later met Dr Yazdi, Dr Javed, and Professor Hartley with whom he struck up a working relationship developing a number of ideas together. Subsequently Dr Yazdi and Dr Javed conceived of the invention that became the subject of the patent.
Elsworth and Mr Bookless (the "Claimants") claimed that Professor Hartley, Dr Yazdi and Dr Javed were de facto directors of Elsworth during the period when the inventive concept was conceived and when the patent application was filed (24 March 2006). As such, it was argued that they each owed a fiduciary duty to the company, and as a consequence, any such patent applications should have been made with Elsworth as the named applicant and owner, and not BCTL.
Relevant law
The Judge applied the case of Holland v Commissioners for HMRC [2010] UKSC 51 which set out the law on de facto directors. From this he concluded that there was no single test by which a de facto director could be defined. The court must take into account all relevant factors. He concluded that the following were of particular significance (non-exhaustive):
(i) Where the individual (the putative de facto director) was acting with one or more others who were true directors, whether he was acting on an equal footing with those others in directing the company's affairs.
(ii) Whether there was a holding out by the company of the individual as a director and whether he used the title.
(iii) Taking all the circumstances into account whether the individual was part of the corporate governing structure, that is to say the system by which the company is directed and controlled.
The Judge considered that the first of these points was especially important and said:
For someone to be held to be a de facto director alongside one or more de jure directors there must be clear evidence that he was acting on an equal footing with the other(s) in directing the affairs of the company.
If it is unclear whether the acts of a person are referable to an assumed directorship, or to some other capacity such as a consultant, that person must be entitled to the benefit of the doubt, i.e. there will be no inference of a de facto directorship.
Decision
The Judge concluded that none of the evidence relied upon by the Claimants pointed to Professor Hartley, Dr Yazdi or Dr Javed being de facto directors; in fact he concluded there were factors which pointed the other way. The Judge found as follows:
Accordingly, Professor Hartley, Dr Yazdi or Dr Javed were never de facto directors of Elsworth and so could not have been in breach of their fiduciary duties to act in its best interests.
Comment
The case provides a good summary of the key principles to be considered when assessing whether someone is a de facto director, and highlights the fact that each case will turn on its own facts. The case also serves to highlight the importance of determining the correct name/entity in which patent applications should be filed at an early stage, especially where a number of potentially interested parties are involved. It also illustrates that individuals should take care not to find themselves sucked into a director role and thus lose patent rights they might otherwise have retained for themselves.
Written by Philip Bilney and David Knight
Summary
The Intellectual Property Enterprise Court (IPEC) has recently rejected a claim that the company named as patent applicant should have been a different company. The main basis for this claim was that the inventors were de facto directors of the company that should have been named, and so were in breach of their fiduciary duty by naming a different company. The Judge held that none of the evidence relied upon by the Claimants pointed to either of the inventors being de facto directors and thought there were factors which pointed the other way. A claim of breach of contract was also not made out.
Background
The patents and patent applications in question were applied for by Bioconversion Technologies Ltd (BCTL), the fourth defendant. The named inventors were Dr Yazdi and Dr Javed.
In 2002, the second claimant, Mr Bookless, incorporated a company called EECO Limited (which later changed its name to Elsworth Ethanol Company Limited ("Elsworth") in May 2006) as a vehicle to develop his idea relating to the recycling of waste material to produce energy. He later met Dr Yazdi, Dr Javed, and Professor Hartley with whom he struck up a working relationship developing a number of ideas together. Subsequently Dr Yazdi and Dr Javed conceived of the invention that became the subject of the patent.
Elsworth and Mr Bookless (the "Claimants") claimed that Professor Hartley, Dr Yazdi and Dr Javed were de facto directors of Elsworth during the period when the inventive concept was conceived and when the patent application was filed (24 March 2006). As such, it was argued that they each owed a fiduciary duty to the company, and as a consequence, any such patent applications should have been made with Elsworth as the named applicant and owner, and not BCTL.
Relevant law
The Judge applied the case of Holland v Commissioners for HMRC [2010] UKSC 51 which set out the law on de facto directors. From this he concluded that there was no single test by which a de facto director could be defined. The court must take into account all relevant factors. He concluded that the following were of particular significance (non-exhaustive):
(i) Where the individual (the putative de facto director) was acting with one or more others who were true directors, whether he was acting on an equal footing with those others in directing the company's affairs.
(ii) Whether there was a holding out by the company of the individual as a director and whether he used the title.
(iii) Taking all the circumstances into account whether the individual was part of the corporate governing structure, that is to say the system by which the company is directed and controlled.
The Judge considered that the first of these points was especially important and said:
For someone to be held to be a de facto director alongside one or more de jure directors there must be clear evidence that he was acting on an equal footing with the other(s) in directing the affairs of the company.
If it is unclear whether the acts of a person are referable to an assumed directorship, or to some other capacity such as a consultant, that person must be entitled to the benefit of the doubt, i.e. there will be no inference of a de facto directorship.
Decision
The Judge concluded that none of the evidence relied upon by the Claimants pointed to Professor Hartley, Dr Yazdi or Dr Javed being de facto directors; in fact he concluded there were factors which pointed the other way. The Judge found as follows:
- Although Professor Hartley, Dr Yazdi or Dr Javed attended meetings with Mr Bookless to discuss the project which was protected by the patent application, the meetings could not be characterised as board meetings of Elsworth.
- By the end of the period during which they were said to have been de facto directors, no agreement had been reached as to which company or what ownership structure should be put in place to carry forward the project, and no agreement was ever reached.
- None of the three represented themselves to be directors of Elsworth, nor were they so represented by others.
- The corporate governance of Elsworth was at all times within the sole control of Mr Bookless.
Accordingly, Professor Hartley, Dr Yazdi or Dr Javed were never de facto directors of Elsworth and so could not have been in breach of their fiduciary duties to act in its best interests.
Comment
The case provides a good summary of the key principles to be considered when assessing whether someone is a de facto director, and highlights the fact that each case will turn on its own facts. The case also serves to highlight the importance of determining the correct name/entity in which patent applications should be filed at an early stage, especially where a number of potentially interested parties are involved. It also illustrates that individuals should take care not to find themselves sucked into a director role and thus lose patent rights they might otherwise have retained for themselves.
Written by Philip Bilney and David Knight