The recent judgment in the case of Oxonica Energy Limited and Neuftec Limited in the English Patents Court has received a lot of coverage in the legal press, largely for its warning to lawyers everywhere to understand fully the subject matter of a contract before putting pen to paper.

However, the judgment also provides clarification of a number of common misconceptions in patent terminology, useful for lawyers and non-lawyers alike. In particular, Mr Prescott QC discusses:

  1. what is meant by a "patent application";
  2. what is an "international patent application"; and
  3. the difficulties in drafting effective royalty clauses in patent and know-how licences.

Patent applications

The judgment highlights that the commonly used phrase, "patent application" is inherently ambiguous and has two different accepted meanings; either:

  • the legal state of affairs when a person requests the competent authority to grant a patent and that request is still outstanding; or
  • the content of the documentation which that person has filed in connection with that request, including, in particular, a description of the invention together with at least one claim seeking to define it.

The crucial difference between the two meanings is that the first, a request for a legal privilege, would cease to exist as soon as the "application" was withdrawn, refused or granted. The second meaning, the content of the documents filed, is a fact that will exist forever irrespective of the actions of the Patent Office or the applicant. Mr Prescott cites examples from the Patents Act 1977 itself where the exact meaning of the terms is unclear.

This distinction should be borne in mind both by lawyers drafting contracts and by the parties conducting negotiations of a patent or know-how licensing arrangement in order that the final agreement reached leaves no ambiguity and reflects the understanding of both parties.

International patent applications

The judgment goes on to remind us that the phrase "international patent application" is also often misunderstood and stresses that there is no such thing as an international patent, nor is it possible to apply for one. Rather, the phrase refers to a preliminary procedure conducted at an international level, which affords applicants extra time before they are required to commit to the expense of a national patent application.

Mr Prescott highlights that the benefits of this international procedure are the potential for reducing search costs and also the ability to link back most national patent applications to the date of publishing under the international patent procedure.

Mixed patent and know-how licences

The judgment also contains a useful discussion of the difficulties of drafting suitable royalty clauses in cases where the true subject matter of a licence agreement is the right to use information wider than that strictly contained in the patent claims. Mr Prescott makes the sensible observation that in real life most inventions are not highly innovative and that it is generally very easy to evade the claims of a patent as strictly construed under patent law. What is often more valuable to a patent licensee than the information contained in the patent claims is other general "know-how", without which the claimed technology could not function. In practice, such information will often consist of a miscellaneous "rag bag" of items, which may seem trivial in isolation.

The judgment considers that whilst nobody would agree to pay royalties for each individual trivial piece of information, equally nobody would grant a know-how licence under which the licensee did not have to pay royalties unless he used all of the know-how together. It is vital therefore to draft the royalties clause very carefully.

Taken together, the facts and discussion in this case show how dangerous, and costly, it can be to draft agreements in a technical field, such as patent law, without a full and thorough understanding of the area and the related terminology.