UK: Buchanan v Alba Diagnostics: Preserving the Commercial Value of Patent Rights as Security

Last Updated: 20 February 2004
Article by Victoria Bentley

The House of Lords has confirmed, in an appeal from the Scottish courts, that assignment of future rights to improvements of a patent is not a restraint of trade. It held that the term "improvement" should be given a broad and commercial meaning to maintain the commercial value of patent rights taken by investors as security.

Background

The appellant, Mr Buchanan, had brought proceedings for infringement of his patent for a fluid boiling point measuring device against the respondent, Alba Diagnostics ("Alba").

When a third party invested in Buchanan’s company in 1993, it took as security an assignment of assets including improvements and extensions to patents and applications. A patent application was pending, but the product manufactured by Buchanan’s company suffered from technical weaknesses and his company went into receivership. The investor exercised its right to assign the intellectual property rights to Alba.

Following the collapse of the business, Buchanan developed a solution to the weakness in the product and was granted a patent for this in 1996. Meanwhile Alba was developing its own brake fluid tester device, based on Buchanan’s previously pending application.

Alba proceeded to manufacture and sell its product and Buchanan brought proceedings for infringement of his 1996 patent. Alba denied infringement but contended as a preliminary point that Buchanan had no title to sue because he had assigned his patent rights. Alba argued that Buchanan’s 1996 patent was an improvement on the earlier invention, which passed to the investor under the deed of assignment, so that the 1996 patent rights also passed automatically when the new patent was granted.

Outcome

The House of Lords held that the rights to the 1996 patent had passed to Alba and the Scottish courts were right to hold that Buchanan had no title to sue.

Furthermore the assignment of future rights including improvements was not an unreasonable restraint of trade. It is reasonable and not contrary to the public interest, for the purchaser of patent rights to protect their commercial value by taking the right to any future improvements.

The 1996 patent was an improvement even in the most technical sense, as an invention that fell within the claims of the earlier patent but contained a further inventive step. However, it also facilitated the manufacture of a more effective or convenient product, and the word "improvement" should be given this broader commercial meaning in order to maintain the commercial value of patent rights given as security.

Comment

As early as 1875, Sir George Jessel recognised (in Printing and Numerical Registering Company v Sampson) that people who have turned their attention to a particular class of invention are likely to carry on and continuously improve their invention. The result of this natural tendency to improve is that anyone taking an assignment of patent rights as security will want to ensure that the patent cannot be devalued by a subsequent improvement, and will often insist on an agreement to assign the right to improvements along with the patent.

How can the potential effect on the inventor’s creative spirit be in the public interest? An inventor may be deprived of any incentive to make improvements in his invention. However, any disincentive for improvements must be balanced against the public interest in enabling parties to use their intellectual property rights as security to attract funds for further development. Rights in an invention yet to be developed are by nature speculative, and anyone taking these rights as security must be confident that they will maintain their value without competition from improved patents. To prevent an inventor from undertaking to assign the right to improvements might prevent a company from utilising its intellectual property rights as security. This financial barrier could be as damaging to creative development as the disincentive factor.

What is perhaps surprising is the extent of the commercial approach taken by the House of Lords in defining "improvement". This may give assignees of patent rights more scope to argue that a later patent in a similar vein is an improvement on that which has been assigned to them. Patent holders wishing to assign patent rights including all "improvements" need to include a carefully worded definition of this term unless they are happy for it to be construed very widely.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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