Case No. IP-2020-000098

Trading Activities 41.It was common ground that the IL Application was given patent application number 1120383.3 on 25 November 2011. The Conditions of the Patent Option Agreement required IL or any subsidiary to commence and continue “trading activities” within 6 months of that date, i.e. by 24 May 2012, failing which the Option became available to Mr Jones for the duration of the Option Period.42.During the 6 months up to 24 May 2012 an Investment and Funding Mechanism was prepared to attract investment to IL, together with Business Plan Framework, draft sale and cash flow accounts, a parts list and costings for the heaters. A website was set up for the company. A video was created and posted on the website which showed the original IRH but not the prototype of the heater as later claimed in the granted Patent. In cross-examination Mr Gedroge accepted that in fact no such prototype was made during that period. A marketing brochure was produced, although the evidence did not show whether it was distributed and if so, to what extent. There were discussions with and interest from potential investors, but no investment was received by IL.43.It was not in dispute that during the 6 months up to 24 May 2012 no orders for any goods were received IL and nothing was sold by IL either in the way of goods or services.44.Whether IL engaged in trading services therefore depends on the correct construction of that term. The law on the interpretation of a contract was not in dispute. Counsel for Mr Jones relied in particular on the recent summary of the relevant principles by Carr LJ in ABC Electrification Ltd v Network Rail Infrastructure Ltd [2020] EWCA Civ 1645:“[17] The well-known general principles of contractual construction are to be found in a series of recent cases, including Rainy Sky SA v Kookmin Bank [2011] UKSC 50; [2011] 1 WLR 2900; Arnold v Britton and others [2015] UKSC 36; [2015] AC 1619 and Wood v Capita Insurance Services Ltd [2017] UKSC 24; [2017] AC 1173.[18] A simple distillation, so far as material for present purposes, can be set out uncontroversially as follows:(i) When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean. It does so by focussing on the meaning of the relevant words in their documentary, factual and commercial context. That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the contract, (iii) the overall purpose of the clause and the contract, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party's intentions;(ii) The reliance placed in some cases on commercial common sense and surrounding circumstances should not be invoked to undervalue the importance of the language of the provision which is to be construed. The exercise of interpreting a provision involves identifying what the parties meant through the eyes of a reasonable reader, and, save perhaps in a very unusual case, that meaning is most obviously to be gleaned from the language of the provision. Unlike commercial common sense and the surrounding circumstances, the parties have control over the language they use in a contract. And, again save perhaps in a very unusual case, the parties must have been specifically focussing on the issue covered by the provision when agreeing the wording of that provision;(iii) When it comes to considering the centrally relevant words to be interpreted, the clearer the natural meaning, the more difficult it is to justify departing from it. The less clear they are, or, to put it another way, the worse their drafting, the more ready the court can properly be to depart from their natural meaning. However, that does not justify the court embarking on an exercise of searching for, let alone constructing, drafting infelicities in order to facilitate a departure from the natural meaning;(iv) Commercial common sense is not to be invoked retrospectively. The mere fact that a contractual arrangement, if interpreted according to its natural language, has worked out badly, or even disastrously, for one of the parties is not a reason for departing from the natural language. Commercial common sense is only relevant to the extent of how matters would or could have been perceived by the parties, or by reasonable people in the position of the parties, as at the date that the contract was made;(v) While commercial common sense is a very important factor to take into account when interpreting a contract, a court should be very slow to reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed, even ignoring the benefit of wisdom of hindsight. The purpose of interpretation is to identify what the parties have agreed, not what the court thinks that they should have agreed. Accordingly, when interpreting a contract a judge should avoid re-writing it in an attempt to assist an unwise party or to penalise an astute party;(vi) When interpreting a contractual provision, one can only take into account facts or circumstances which existed at the time the contract was made, and which were known or reasonably available to both parties.[19] Thus the court is concerned to identify the intention of the parties by reference to what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean. The court's task is to ascertain the objective meaning of the language which the parties have chosen to express their agreement. This is not a literalist exercise; the court must consider the contract as a whole and, depending on the nature, formality, and quality of drafting of the contract, give more or less weight to elements of the wider context in reaching its view as to that objective meaning. The interpretative exercise is a unitary one involving an iterative process by which each suggested interpretation is checked against the provisions of the contract and its commercial consequences investigated.”45.Mr Keay argued for Mr Jones that the natural and ordinary meaning of “trading activities” is the selling of goods or services. The commercial context of the Patent Option Agreement was that IL was required to show that IL had been established to exploit the invention. Against that background, the commencement of trading activities required at the minimum the placing of an order with IL for the sale of a heater.46.Mr Edenborough argued for IRL that the parties chose the term “trading activities” deliberately in favour of “sales” or “orders”. A reasonable person would interpret “trading activities” to include at least the cumulative activities which IL had accomplished by 24 May 2012, particularly since the 6 month timeframe was tight and so sales and orders would not have been expected by the end of that period.47.Mr Edenborough had an alternative argument that the words “commencement and continuation of trading activities” meant that IL merely had to show that it was continuing the activities it had started before the 6 month term started.48.Dealing with the latter argument first, I reject it. It ignores the word “trading” which is the key word. “Continuation” meant only that if IL started trading activities but had ended them, for example abandoned them, before 25 May 2012, the Option would have become available to Mr Jones.49.Turning to the main argument between the parties, in my view the natural and ordinary meaning of “trading activities” is the buying or selling of goods and/or services. The key part of the background facts, it seems to me, is that IL had to show by 24 May 2012 that it was it was likely to be able to exploit the invention. A sale would be a reasonable criterion by which IL’s ability to exploit the invention could be sufficiently established. I think the reasonable person’s understanding of the term would stretch beyond the usual meaning of trading to include anything which could reasonably be taken to indicate an ability to exploit the invention, so I would include orders for the patented heater. By contrast, none of the activities by IL before 24 May 2012, stated above, could reasonably be taken to show that IL was capable of conducting a business in the sale of the heaters. A hypothetical enterprise that was hopelessly incapable of selling anything could have carried out all of those activities. They were not, even cumulatively, in my view trading activities. Accordingly, the “Conditions” as defined in the Patent Option Agreement were satisfied. The Option Period 50.The Option Period in the Patent Option Agreement presents a difficulty. Aside from its definition, it is mentioned only in clause 3 which “grants to [Mr Jones] the Option to require [IL] to assign to [Mr Jones] all of the Rights at any time during the Option Period”. Taken by itself it is ambiguous. It could mean that Mr Jones had to exercise the Option within the Option Period or alternatively that if the Option were exercised, IL had to assign the Rights within the Option Period. Both sides assumed it was the former. Given clause 3.1, that seems to be right.51.The parties both noted that the definition of Option Period was not straightforward. It is the period commencing six (6) months from the date of allocation of the pending patent number to the Patent. I was told, and understood it to be common ground, that a number is first allocated to a Patent when the patent application is published pursuant to rule 26 of the Patents Rules 2007. In this case that happened on 26 March 2014. Yet if the period in which IL had to satisfy the Conditions ended on 24 May 2012, it made no obvious sense for Mr Jones to be required to wait nearly 2 years before he could serve an Option Notice.52.The pleaded objections in the Defence to the valid service of the Option Notice were three and none of them concerned the date on which the Option Notice was served. Moreover, the Defence pleaded that on a correct construction the Option Period commenced 6 months after the application date. This implied no end to the Option Period and Mr Jones undoubtedly served the Option Notice within the Option Period so construed. For that reason, at the trial Mr Edenborough withdrew any argument on the date of service. The pre-dating of the Option Notice 53.The only other pleaded ground of objection to the validity of service of the Option Notice pursued at the trial related to the date of the Notice.54.The Option Notice was dated and was served on 12 June 2012 and specified that Completion had to take place by 4 June 2012. Clause 3.1 of the Patent Option Agreement required Completion to take place between 7 and 21 days after service of the Option Notice. Completion by 4 June 2012 was self-evidently impossible. Therefore, Mr Edenborough argued, the Option Notice was defective and its service could be ignored.55.I can see no substance in this argument for two reasons. First, it must have been clear to IL when the Option Notice was served that the date specified for Completion was a mistake since the date had already passed. Secondly, there was no breach of the Patent Option Agreement. As I have said, clause 3.1 required Completion to take place between 7 and 21 days after service. There was no term requiring Mr Jones to specify a date within that window. Clause 4.1 required a date to be determined for Completion and allowed the parties to agree a date outside the 14-day window. Part 2 of the Schedule to the Patent Option Agreement set out a model Option Notice, followed by Mr Jones, which included the specification of a Completion Date, but doing this was not a requirement of the Patent Option Agreement.56.In my view, the Patent Option Agreement Completion had to take place within the 14-day window unless the parties agreed otherwise. They did not agree otherwise. The specification of a Completion Date in the Option Notice was nothing more than a proposal by Mr Jones and self-evidently a date he did not mean. The obligation on IL to assign the right to apply for a patent for the invention within the window remained.57.Upon service of the Option Notice IL was under a contractual obligation to assign the legal interest in the right to apply for a patent for the invention. From the date of service the equitable interest in the right passed from IL to Mr Jones.