A company seeking to make fuel more efficient and less polluting
and a nanotechnology company signed an agreement about how to
collaborate. The nanotechnology company was given access to the
first company's know-how and material covered by a patent
application.
The agreement, though, was ambiguous and drafted by someone
without "a deep understanding of the relevant law", according to Mr
Peter Prescott QC, sitting as a Deputy High Court judge.
Mr Prescott said that word processors have made it easier for
those drafting contracts to create agreements which are ambiguous,
error-filled or unclear of purpose.
"The secret of drafting legal documents was best described by
Nicolas Boileau, who was not only a literary critic but a qualified
lawyer: 'Ce que l'on conçoit bien s'énonce clairement et les mots
pour le dire arrivent aisément'," said Mr Prescott in his ruling.
"What one conceives well can be stated with clarity and the words
to say it come easily. We should all have that framed and displayed
on our desks."
"But too often the opposite precept is followed. Bits of legal
boilerplate are bolted together so that it is the words that are
allowed to shape the concept instead of the other way round. In
that regard the invention of the word processor has worked wonders.
Sometimes, I fear, it has dispensed with the 'concept' altogether.
Misfortune not infrequently follows," he said.
Mr Prescott ruled on the nanotechnology case in which much
hinged on the exact meaning of the words 'application' and
'or'.
Neuftec came up with the idea of injecting lanthanoid elements
into fuel to increase efficiency and reduce fuel emissions. It
agreed to share its idea with university nanotechnology spin-out
Oxonica Energy, which would work on the scientific implementation
of the idea.
Neuftec made an international patent application according to
the Patent Cooperation Treaty (PCT) and the two companies signed an
agreement in which Oxonica agreed to pay Neuftec royalties for the
use of material covered by the patent.
PCT patent applications are assessed by individual countries
which grant or reject patents in relation to the claimed
inventions. In Neuftec's case many countries granted patents that
covered more limited ground than the PCT application and some
rejected it.
Oxonica claimed that it only had to pay royalties for sales in
those countries which granted patents covering the technology. It
asked the High Court to confirm its position.
The agreement ordered the payment of royalties in relation to
"any product, process or use falling within the scope of the claims
in the Licensed Application or Licensed Patent".
Neuftec argued that the agreement covered not just material
covered by granted patents in particular countries but anything
covered in its original PCT patent application.
Mr Prescott pointed out a number of malapropisms, poor uses of
terms and drafting errors which made interpretation of the
agreement difficult. The biggest problem, though, centred on two
definitional questions.
There was a dispute over the word 'application' and whether it
referred to material for which a patent was successfully granted in
a particular country, as Oxonica claimed, or whether it referred to
anything contained in the actual PCT patent application document,
as Neuftec claimed.
The parties also disputed the interpretation of the word 'or'.
Oxonica said that the application became the patent and the
royalties were to be paid for the granted patent or the pending
application, depending which was in existence at the time. They
could not both exist at the same time, it said.
Neuftec, though, said that the 'or' meant that the royalties
were to be paid in relation to any material in a granted patent and
any material in the PCT application.
Mr Prescott said that in cases such as this a court had to take
an active role in forcing an interpretation out of an ambiguous
agreement.
Previous court practice was to interpret agreements very
literally to avoid "doing violence" to the exact language used by
the agreement by over-interpreting them. Mr Prescott said that
court practice had changed in modern times, though, and that courts
had to try to ensure that the words in an agreement meant what the
person drafting the agreement thought they should mean.
"[When] two meanings are possible, perhaps even plausible … the
court cannot just give up. All it can do is to find the
interpretation that best accords with business common sense," he
said. "And, in doing that, the court will not, in my judgment, be
overly swayed by the consideration that it is "doing violence to
the natural meaning of the language" if, as Lord Hoffmann pointed
out in the later case, it would appear that it was the author of
the document who did the violence."
The problem was that the agreement was unclear and partially
this was due to modern drafting methods, said Mr Prescott.
"The more I read the document, the more I think: 'A little
learning is a dangerous thing'. It contains a number of
malapropisms: they cause me to believe that the draftsman was not
very familiar with patent practice and terminology. It conveys an
impression that he was not always clear in his own mind about what
he was doing and, when not clear, allowed his word processor to do
his thinking for him. Bits of legal phraseology have been lifted
from I know not what precedents and assembled in a strange way," he
said.
Mr Prescott ruled that Oxonica should pay the royalties on any
technology falling within the scope of the original PCT
application. He said that the agreement involved commercial and
technical know-how as well as practical details and that the patent
application was a "convenient yardstick" used to measure Neuftec's
contribution to the venture.
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