The UK Supreme Court has issued its decision in the case of Schütz v Werit  UKSC 16, allowing Werit's appeal and holding that the company did not "make" a product covered by a patent by merely replacing a part of that product.
The Supreme Court's judgment not only sets out the relevant factors to be considered when determining the definition of 'makes' under section 60(1)(a) of the Patents Act 1977 (the "Act"), but also, more generally, opens the door for manufacturers to create replacement parts for patented products without being subject to a patent infringement claim. This is an important judgment for any manufacturer of a patented product which has replaceable parts (e.g. printers and ink cartridges, coffee machines with replaceable coffee pods) as well as any company whose business involves manufacture and supply of spare parts.
Lord Neuberger (who gave judgment on behalf of the Supreme Court) also commented on the application of section 68 of the Act, which requires exclusive licensees of a patent to register the licence in order to recover costs in patent infringement claims. Strictly speaking, the UK Supreme Court did not have to address the section 68 issue since it found that Werit had not infringed the patent. However, Lord Neuberger's comments provide useful guidance as to how the UK Supreme Court views section 68 in practice.
Section 60(1)(a) of the Act states that a person who, in relation to a product, makes, disposes of, offers to dispose of, uses or imports the product or keeps it whether for disposal or otherwise without the patentee's consent, will directly infringe the patent in question. Moreover, where a party supplies to a primary infringer the 'means essential' to carry out that infringing act, it too will be liable under the principle of indirect infringement in accordance with Section 60(2) of the Act.
Protechna S.A. (“Protechna”) is the proprietor of European Patent (UK) 0 734 967 (the "Patent") for an intermediate bulk container ("IBC") comprising a pallet, a bottle and a cage. The respondent in this appeal, Schütz (U.K.) Limited (“Schütz”) is the exclusive licensee of the Patent in the United Kingdom.
As explained by the Court, an IBC is a large container, normally around 1000 litres in volume, used for the transport of liquids. Protechna's IBC is constructed in two parts, consisting of a metal cage into which a large plastic bottle is fitted. In its decision, the Supreme Court confirmed that the inventiveness of the Patent resided in the technical features of the cage itself, which incorporated weld joints and a dimple on either side of the weld to increase its strength and durability.
IBCs are not always re-usable in their original form, as toxic liquids and/or damage may necessitate the disposal of the bottle element. Capitalising on this limitation, the market for IBC re-conditioning, namely replacing the original bottle and repairing any damage to the cage itself, has grown. Re-conditioning can take two forms, "re-bottling” (replacing the bottle with a fresh bottle from the original manufacturer) or “cross-bottling” (replacing the bottle with a bottle from a different source).
Werit UK Limited (“Werit”), the appellant in this matter, sold its own IBC bottles to a re-conditioner, Delta Containers Limited (“Delta”). In turn, Delta obtained discarded Schütz IBCs, replaced the original bottles with bottles supplied by Werit before offering these cross-bottled IBCs for sale.
Schütz objected to this conduct arguing that, by re-bottling its IBCs, Delta was infringing the Patent by 'making' the product without consent. In the event Delta was adjudged to have infringed the Patent, Werit would necessarily also be liable under the principle of indirect infringement. The principal issue for the Court to consider was therefore whether Delta's conduct amounted to unlawfully 'making' the product, or alternatively whether it merely constituted a lawful repair of that product.
History of the Proceedings
At first instance in the High Court, Floyd J held that Delta's "activity of replacing the inner container of a Schütz IBC with a Werit bottle does not amount to making the patented product",  EWHC 660 (Pat). In support of this conclusion, Floyd J emphasised the importance of accurately identifying the inventive concept of the Patent, arguing that the "correct approach is to ask whether, when the part in question is removed, what is left embodies the whole of the inventive concept of the claim". Floyd J considered that as the inventive concept of the Patent was embodied in the Schütz cage, replacing the bottle alone did not therefore constitute infringement.
On appeal, Jacob LJ relied heavily on the reasoning of the Court of Appeal and House of Lords in United Wire Ltd v Screen Repair Services (Scotland) Ltd,  4 All ER 353. Holding that the approach advocated by Floyd J was inappropriate, Jacob LJ instead concluded that the "product ceased to exist when the bottle [was] removed". Delta's conduct therefore amounted to infringement of the Patent, as what "remained at that stage was merely an important component from which a new IBC could be made",  EWCA Civ 303.
The Court has now issued its decision, unanimously allowing Werit's appeal and holding that Werit's re-bottling activities did not constitute infringement of the Patent.
As a preliminary point, the Court noted that as the House of Lords had already issued a decision on the meaning of the word 'makes' in United Wire, it could only be departed from if there were very good reasons to do so. Lord Neuberger also helpfully set out a number of additional factors which should be borne in mind when interpreting the definition of the word 'makes' for the purpose of the Act:
- the word should be given a meaning which it can reasonably bear as a matter of ordinary language;
- it is not a term of art and does not have a precise meaning;
- it will inevitably be a "matter of fact and degree" as to whether particular conduct constitutes 'making';
- the word must be afforded a practical interpretation in accordance with the specific facts of a case;
- "clarity and certainty" are nonetheless desirable;
- the word will ultimately be applied to patents for products generally and therefore it should not be construed too narrowly;
- when interpreting the word, the Court should remain vigilant of the underlying rationale for patent protection, namely of "the need to protect the patentee's monopoly while not stifling reasonable competition".
Turning his attention to the contrasting decisions of the lower courts, Lord Neuberger clearly thought that both Floyd J at first instance and Jacob LJ on appeal had approached the question incorrectly. In terms of the first instance decision, his view was that Floyd J's approach was, over-simplistic albeit "attractive and simple to apply".
On the other hand, he considered that the Court of Appeal's approach was too rigid as well. The Court of Appeal had, in Lord Neuberger's view, placed too much reliance on the facts of United Wire and consequently had allowed that decision to unduly determine the outcome of the present case. Indeed, the Court commented that if one were to follow Jacob LJ's reasoning as articulated in the Court of Appeal, "replacing any part of a patented article would involve 'making' it", which could not be a correct interpretation of the Act. Lord Neuberger felt that United Wire should be distinguished on its facts. In particular, the Supreme Court identified a number of substantive differences between the respective cases which should have precluded the automatic application of United Wire, including:
- the part replaced in United Wire had no independent identity from the retained part;
- the replaced part was "integrally connected to the retained part", thereby necessitating a substantive element of demolition;
- the replaced part was "subjected to significant improvement work";
- the inventive concept was integrated within, or associated with the replaced part; and
- the work in any event could plainly be classified as manufacture.
Instead, Lord Neuberger stated that the Court of Appeal should have recognised that the question of whether the replacement of a part within a patented product constitutes 'making' "is a matter of fact and degree". Furthermore, in addressing this issue, the Supreme Court held that it was legitimate to determine whether "the bottle is such a subsidiary part of the patented article that its replacement…does not involve 'making' a new article".
In order to ascertain the extent to which an article can be said to be subsidiary, Lord Neuberger proposed two relevant factors: i) its life expectancy, in the sense that regular replacement of the IBC's bottle would reinforce the notion that it was a subsidiary part; and ii) whether the part replaced "includes the inventive concept, or has a function which is closely connected with that concept".
Acknowledging that United Wire did not explicitly support the relevance of inventive concept in such an analysis, Lord Neuberger nonetheless considered that United Wire did not preclude consideration of the inventive concept in this way.
In many cases, when considering 'fact and degree' the Court commented that it would also be legitimate to simply ask whether the putative infringer's activities involved 'repairing' the original product. For example, it is plain that while works to a car or ship, such as the replacement of an engine may be quantitatively significant, as a matter of ordinary language they would only amount to 'repair' rather than 'making'. Lord Neuberger drew support for this position from various decisions of the German courts. As section 60(1)(a) is intended to conform with the European Patent Convention, such decisions can be of significant persuasive value in ensuring that the convention is applied harmoniously across signatory states.
On the basis of its reasoning as outlined above, the Court therefore concluded that the replacement of a bottle in an IBC would not constitute infringement of the Patent.
It is clear that the Supreme Court's decision will be interpreted as a significant fillip for manufacturers. Although heralded in some quarters as paving the way entirely for such entities to produce replacement or spare parts for consumer products, the Supreme Court's repeated insistence that such cases are typically a matter of "fact and degree", coupled with its criticism of the Court of Appeal for failing to distinguish United Wire on its particular facts may nonetheless restrict its wider application.
Ultimately, the UK Supreme Court's decision was a manifestation of its own judgment after consideration of the various factors set out above.
Although its ruling rendered the issue academic, the Supreme Court nonetheless considered it correct to examine Werit's appeal in relation to section 68 of the Act. In essence, section 68 provides that where a party becomes the proprietor of a patent or an exclusive licensee of a patent, unless that transaction is registered at the United Kingdom Intellectual Property Office, in the event infringement proceedings are commenced, the recovery of costs and expenses will be precluded. The rationale underpinning the provision is simply to promote transparency and certainty.
Protechna had granted Schütz two exclusive licences, dated 24 March 1994 and 26 November 2009. There was a delay in registering both licences, the first licence being registered on 17 July 2008 and the second on 15 November 2012. In the event section 68 applied, Schütz's right to recover costs would have been reduced. In addition, it may also have been disentitled from recovering any damages or an account of profits in respect of infringements occurring before 29 April 2006.
The Court initially considered the procedural questions of when and to what extent reliance on section 68 should be pleaded. Werit had only given notice of its intention to rely on section 68 once the Court of Appeal's judgment in the main proceedings had been issued in draft form. The Court of Appeal had held that it was not necessary to explicitly plead section 68 due to the mandatory terms in which the provision was expressed. The Supreme Court disagreed, however, remarking that if the provision was interpreted in this fashion, it would entitle a potential infringer to a significant windfall, essentially allowing that party "to lie low during proceedings brought by an unregistered licensee, knowing that there was a complete defence to any financial liability". Accordingly, to "ensure that the other party is not taken by surprise", it is clear that section 68 should be pleaded at an early stage of proceedings in the defendant's statement of case.
Having said that, Lord Neuberger's view (in contrast to the Court of Appeal) was that Werit had pleaded reliance on section 68 since it had used the language of the provision itself.
The take-away for practitioners from the Supreme Court's judgment is that any party wishing to rely on section 68 should plead this in express terms in its defence.
Finally, in the context of diverging views from the parties, Lord Neuberger considered the legal effect of the provision. In an attempt to mitigate the possibility of the provision producing what Lord Neuberger termed a harsh result, Lord Neuberger held that the correct interpretation of section 68 was that a licensee who has successfully claimed damages or an account of profits for infringement of a patent will be precluded from recovering its costs, but only in respect of infringements pre-dating the registration of the licence. Costs in relation to such relief will remain fully recoverable for the period post-registration.
If you would like the full details of the case, it can be read here.