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Hughes v Paxman: the dangers of co-owning patents
The recent case of <em>Hughes v Paxman </em>has highlighted the dangers of co-ownership of a patent.
The recent case of Hughes v Paxman has highlighted the dangers of co-ownership of a patent.
In the absence of any agreement to the contrary under the Patents Act 1977 a co-owner has the right to exploit the patent, but the co-owner cannot license, assign or mortgage a patent without the consent of the other co-owner(s). This requirement for consent can give rise to problems if the consent is not forthcoming, as can happen when a commercial relationship breaks down and there is deadlock.
No formal agreement
Paxman had invented the ‘Trim Cool', a cooling unit designed for drinks refrigeration. While seeking to patent the Trim Cool, Paxman had obtained the help and finance of Hughes, but no formal agreement was entered into between the parties. Hughes then suggested that the patent should be assigned into their joint ownership on the basis that Hughes would continue to pay the costs associated with the patent. Paxman agreed.
Several months later, Hughes suggested a joint venture vehicle, Trim Cool Ltd, be incorporated to exploit the invention and sell the Trim Cool. Trim Cool Ltd was incorporated a month later, owned in equal shares by Paxman and Hughes. No shareholders agreement was ever discussed or entered into, and there was no discussion, or agreement, on financing Trim Cool Ltd; how Trim Cool Ltd would acquire the products; the royalties that would be paid by Trim Cool Ltd to Hughes and Paxman (who retained joint ownership of the patent); or the term and termination of the agreement. Given this overwhelming lack of clarity, it is therefore unsurprising that Paxman and Hughes soon found themselves in disagreement.
Dispute
Paxman believed that the Trim Cool should be manufactured by a leading Italian company and wanted to grant a licence of the patent to that company. However, Hughes desired that one of his companies should have a licence to manufacture the product. Paxman believed Hughes' company lacked the expertise to manufacture the products to the required standard. They disagreed and commercial relations broke down. As neither could grant a licence without the consent of the other, a deadlock was reached and the patent went unexploited. Ultimately, Paxman resigned as director of Trim Cool Ltd and applied to court for a licence to exploit the patent. This has led to time-consuming litigation and has no doubt cost the pair commercial opportunities, which could perhaps have been avoided.
Comment
Although sometimes superficially desirable, wherever possible one should avoid having co-proprietorship of a patent. Retention of control and exploitation go hand in hand: by retaining ownership over a patent a party can exploit it to far more effect than someone who is constrained by the need for another's consent, or ultimately, an order of the court.
If it is necessary to enter into co-proprietorship, then an agreement should be entered to set out the terms. This will assist in avoiding a deadlock and a situation in which neither owner can exploit the patent.
Hughes v Paxman [2006] EWCA Civ 818
By David Knight, partner.