Entitlement dispute: when things seem a little incomplete

Future New Developments Ltd v B & S Patente und Marken GmbH, an Intellectual Property Enterprise Court, England and Wales, ruling by Judge Richard Hacon last week, is a short extempore decision that was picked up only on the subscription-only Lawtel service. If it sounds a bit familiar, that's because an earlier matter arising out of this dispute was noted on the IPKat weblog, when it was established that the UK Intellectual Property Office was a "court" for the purposes of the Brussels I Regulation.

Future New Developments (FND), a Cayman Islands company, applied for summary judgment in its claim against a German company, B&S, concerning entitlement to a patent for energy-saving technology for use in fluorescent tubes. The initial applicant for the patent assigned the application to FND, following which the European Patent Office granted the patent in 2002.  However, in January 2002, FND's parent company issued a share mortgage in respect of FND's shares in favour of the patent's initial applicant. In March 2009, one of FND's directors purported to assign the patent to B&S and the UK Intellectual Property Office recorded B& as its registered proprietor.

A written resolution in February 2009 by FND's parent company purported to remove the director from his directorship and it appeared from official certificates issued in the Cayman Islands that the director had resigned in January 2009. An expert in Cayman Islands' law explained that, if the parent company was FND's sole shareholder (as was the case), it had the power to issue an ordinary resolution removing the director -- who, once removed, would have no further authority to assign the patent.  After the patent's assignment FND, which had paid €166,000 in renewal fees, maintained that the director had been lawfully removed from his directorship in February 2009 so that he had no legal authority to assign the patent, and that under Cayman law, even if he was a director, he would not have had authority without formal approval from FND's board of directors.

Although B&S did not appear at the hearing, a witness statement of one of its representatives did appear and submitted that (i) the validity of the assignment from FND to B&S fell to be determined under German law and that, in the absence of proper evidence, the court was not in a position to resolve it; (ii) the parent company had not been FND's sole shareholder at the relevant time, so the director's purported removal was invalid; (iii) the parent company had defaulted in paying under the share mortgage, which affected the ownership of the shares in FND; (iv) in January 2009 the original applicant's administrator had contracted with B&S to assign worldwide patent rights, including the patent at issue, for €15,000; (v) FND had not paid the fee for the patent's assignment, so that the agreement was a "pending contract" which could be disregarded once the original applicant became insolvent in 2008; (vi) the director had received no notice of the removal resolution, so his purported removal had no force in law and, finally, (vii) in January 2002, another individual had been appointed a director of FND under terms that breached the share mortgage agreement.

Judge Hacon granted the application. In his view:

* The witness statement of B&S's representative had also stated that the director's authority to assign was to be determined under the law of the Cayman Islands, and he gave no reason for stating why that position would not be recognised under German law. The court should not take into account his unrealistic expectation that the assignment would have encountered difficulties under German law, which did not amount to a defence.

* It was hard to determine from the documents what had happened regarding FND's shares during the relevant period. It seemed clear that the parent company had owned them in January 2002. Although a share mortgage had been issued, there was no evidence that the shares in FND had actually left the parent company, so that the director's directorship had validly been terminated.

* The share mortgage required written notice of default by the purchaser, i.e. the parent company, to be sent to the original applicant, and there was no evidence or suggestion that that had been done. If B&S's case was that no written notice had been sent, the court would have expected it to make an application in the Cayman Islands to rectify the position.

* The purported worldwide assignment mentioned by B&S was not produced in evidence.

* The evidence from the independent lawyer for B&S was that unfulfilled contracts ceased to have effect once a party became insolvent, but that the administrator "may" decide not to complete the contract -- but that was not quite what B&S's representative was contending. The original applicant's administrator could have dealt with the assignment of the patent application if the obligation to pay had not been fully satisfied. The expert had not indicated that the administrator had taken such a view, and the administrator himself had made no such comments in his evidence.

* The evidence showed that something was posted and faxed to the director on or about the date of the removal resolution, but did not show what was actually sent. The expert's unchallenged evidence was in any event that notice of removal was irrelevant to the removal's effectiveness.

* Whether another director of FND had been appointed did not affect whether the director at issue had been correctly dismissed. There was no evidence that the share mortgage had been breached, as that mortgage required the original applicant's prior written consent for such an appointment and no such consent had been adduced.

* None of B&S's representative's points raised any real prospect of success at trial. What's more, B&S hadn't paid any of the patent's renewal fees and the director had made no attempt to rectify his removal.

The takeaway message here seems to be that there is really no point in contesting litigation if your evidence is either not there at all or is not going to substantiate the points on which you are planning to rely. There's a somewhat unsatisfactory feeling about this case: did it only get as far as a hearing because the defendant half expected it to settle at the door of the court on a more favourable basis, this blogger wonders.