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Why forego an entitlement to costs? - The effects of failing to register a transaction in a patent

David Knight
Although the adverse consequences were perhaps less than they otherwise might have been, the recent decision in L'Oréal Société Anonyme & L'Oréal (UK) Limited v RN Ventures Limited underlines the benefits of registering transactions in a patent at the Intellectual Property Office.

Although the adverse consequences were perhaps less than they otherwise might have been, the recent decision in L'Oréal Société Anonyme & L'Oréal (UK) Limited v RN Ventures Limited underlines the benefits of registering at the United Kingdom Intellectual Property Office transactions in a patent.

The two claimants, both part of the L'Oréal group of companies, successfully sued RN Ventures at first instance for patent and registered design infringement.  The patent was owned by L'Oréal SA, with an exclusive licence to L'Oréal UK.  As the prevailing parties, the L'Oréal companies were therefore prima facie entitled to recover their reasonable legal costs.  However, as the exclusive licence had not been registered at the UK Intellectual Property Office, the defendant was able to invoke section 68 of the Patents Act 1977.   Section 68 is intended to ensure the accuracy and completeness of the register of patents by providing a costs sanction for failure to register within six months, with the aim of "making the people who own the monopolies get on the register” (paragraph 85 in Schütz v Werit [2013] UKSC 16).

Section 68 reads:-

"Where by virtue of [an exclusive licence] a person becomes … an exclusive licensee of a patent and the patent is subsequently infringed before [the exclusive licence] is registered, in proceedings for such an infringement, the court or comptroller shall not award him costs or expenses unless:-

(a) [the exclusive licence] is registered within the period of six months beginning with its date; or

(b) the court or the comptroller is satisfied that it was not practicable to register [the exclusive licence] before the end of that period and that it was registered as soon as practicable thereafter."

L'Oréal contended that as both L'Oréal SA and L'Oréal UK were legitimate parties to the claim, the licensing arrangement between them was irrelevant, so far as the defendant was concerned, and had not caused the defendant any additional costs.  Accordingly, so L'Oréal argued, it would be wrong for the defendant not to pay costs in the usual way.

 Mr Justice Carr disagreed, stating,

"The policy underlying s.68 is not concerned with prejudice to defendants against whom proceedings for infringement have been brought.  It is concerned with the consequences to the public of a failure to register and provides an incentive to ensure that registration is performed by an appropriate date.  When the section applies, it may always be characterised as a windfall in favour of the defendants, but that is because it is directed to the public interest, rather than the private interests of the parties to the litigation."

He therefore concluded that the claimants should be deprived of their costs of the patent infringement claim.  However, there was more to the case than just a patent infringement claim, namely: a validity challenge to the patent (estimated as 30% of the overall costs); and a design infringement claim (estimated as 20% of the overall costs).   The costs of the remaining patent infringement part of the action were estimated at 50% of the total.  However, the judge went on to decide that only L'Oréal UK should be deprived of its costs, and that a 50/50 split between the two L'Oréal companies was appropriate.  Further, it was agreed between the parties that infringements taking place after the date the exclusive licence was registered (assessed at 30% of all infringements) would not be subject to the s.68 disallowance.

It was cumulatively concluded that the effect of failing to register the exclusive licence was a 17.5% deduction from the overall costs of the claimants.

In the grand scheme of things, particularly having succeeded in their patent and design infringement claims, to forego 17.5% of their costs recovery may not have been too great a concern to the claimants.  Nevertheless, by recording the licence, they could have recovered those costs.  In other cases, particularly if the costs of the patent infringement part of the claim had been a much greater proportion of the total, a failure to register could have a much greater impact.

Although this case concerns an exclusive licence, it is important to note that s.68 applies equally to assignments of patent rights.  It is easy to overlook registering an exclusive licence or assignment, particularly between group companies, when so far as the rest of the world is concerned nothing has changed. This case, however, demonstrates the adverse consequences in the United Kingdom that might flow from this.

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