In the case of Schütz v Werit  UKSC 16, the Supreme Court has held that it will depend on the facts of the case whether replacing a component part of a patented article amounts to "making" that article and hence an infringement of the patent. Where, on balance, a component part is found to be a "subsidiary" part of the article as a whole, the act of replacing that part will not amount to "making" and will therefore not infringe the patent. The judgment lists a number of factors which can be taken into account when determining which side of the line a particular case falls.
- The reasoning in Schütz v Werit concerns the central issue of whether an act of replacement amounts to infringement and hence applies to both the person replacing the part and also the third party supplying the replacement part (who may otherwise be liable for contributory infringement).
- The test to be applied in determining whether a component is a subsidiary part of a patented article as a whole, and so whether its replacement (or the supply of the replacement parts) will be an infringing act, involves assessment of a number of factors. These factors relate to the physical properties of the part and whether or not it has a function closely connected with the inventive concept of the patented article.
- The facts of this case relate to the replacement of a large, relatively hard-wearing component of a patented article which had either worn out or otherwise become unusable and which was replaced by a third party, not the actual user of the article. However, there is no reason why the specific factors considered by the Supreme Court are not also applicable to the assessment of whether the supply of consumable parts for a patented product, perhaps to be replaced by the user of the article, would be an infringing act. The test involves a balancing act and the case provides a non-exhaustive list of generally applicable relevant factors. Consideration will also have to be given in each case as to whether the replaced part has a function closely connected with the inventive concept of the patented article.
- Thus, this decision may open up the market to suppliers of consumable parts for patented articles (subject to whether the component is itself protected by a patent claim), in particular when compared to the decision handed down in this case by the Court of Appeal.
This case relates to a patent owned by Schütz for Intermediate Bulk Containers (IBCs), used for bulk transport of liquids, consisting of large plastic bottles fitted into metal cages. The inventive concept of the patent in suit lay in the design of the cage, not the plastic bottle, although the claim in issue was for an IBC made up of, inter alia, a cage and a plastic bottle.
Due to either wear and tear or contamination, the plastic bottle component of an IBC often requires replacement while the rest of the IBC (the cage) still has a useful life. Hence a market has developed for reconditioned IBCs in which new bottles are put into used cages. Werit manufactured replacement bottles for Schütz IBCs, and a third party, Delta, put the Werit bottles into Schütz cages for resale. The key issue was whether the replacement of the bottle by Delta amounted to "making" – a directly infringing act under s60(1) of the Patents Act 1977 (the Act). If it did, Werit would also infringe the patent by supplying the bottle to Delta for the purpose of rebottling Schütz IBCs (indirect infringement; s60(2) the Act).
At first instance, Mr Justice Floyd held that there was no "making", as the inventive concept did not lie in the replaced part (the bottle) but in what remained (the cage). The Court of Appeal reversed the first instance decision and rejected the "whole inventive concept" test as too uncertain. LJ Jacob held that there was "making" as when the bottle was removed, the patented product (the IBC) ceased to exist, so replacing the bottle must amount to re-manufacture. (He acknowledged that this test granted patentees a generous monopoly on replacement parts, but considered this an issue to be tackled by, for example, competition authorities, and was not an issue for the court.)
The Supreme Court sided with Floyd J that replacement of the bottles was not "making", though Lord Neuberger refined the test, holding that while Floyd J's approach was attractively simple, the correct approach is a multi-factorial analysis as to whether the part to be replaced is subsidiary to the patented article as a whole.
It was relevant that the bottle was an essential and physically large part of the IBC. However, on balance the bottle was found to be subsidiary to the IBC as a whole. The following factors were determinative:
- the bottle had no connection with the claimed inventive concept in the patent (the "whole inventive concept" test is a relevant factor);
- the bottle was a free-standing, replaceable component of the patented article (it required no demolition of the IBC to remove);
- the bottle had a much shorter life expectancy than the cage (5-6 times shorter);
- the bottle was less substantial than the cage (being made of plastic rather than metal); and
- the bottle could not be described as the main component of the patented article.
In addition, whether the end-user (who purchased the original patented article) received payment for the used article could be a relevant factor, but would only ever be just one factor and reliance on it should be approached with caution.
The Supreme Court also considered an issue relating to the effects of failing to register patent licenses within the proscribed time under s68 of the Act. However, as Lord Neuberger acknowledged, his comments on this issue are strictly obiter dicta and are in any event beyond the scope of this note.
Background and reasons for decision
The case of Schütz v Werit relates to intermediate bulk containers (IBCs), which are large containers used for the transport of liquids. The patent related to a design for an IBC comprising a metal cage into which a large plastic container, or "bottle", is fitted. The inventiveness of the claims lay in the idea of introducing flexible weld joints in the cage to increase its strength and durability. The description of the patent acknowledged that the bottle is "exchangeable".
"Reconditioners" engage in re-bottling of IBCs, replacing the old bottle with a new bottle, potentially from a different source to the original manufacturer ("cross-bottling") and repairing any damage to the cage. Schütz was a manufacturer of IBCs; Werit a manufacturer of bottles that fit the Schütz cages. Delta Containers Ltd (Delta), acted as the reconditioner, fitting Werit bottles into Schütz cages, for sale in competition with Schütz's IBCs.
Disposal of a patented article by a patentee results in exhaustion of his patent rights. However, the prohibited acts listed under s60 of the Act, which include "making", limit what the new owner may do with the article. The case for infringement in Schütz v Werit rested on whether Delta’s actions, in putting a plastic bottle into a Schütz cage amounted to "making" a patented IBC (s60(1) the Act). If Delta infringed the patent, Werit would also indirectly infringe by providing an essential element of the invention to Delta knowing that it was to be used to put the invention (described in the Schütz patent) into effect (s60(2) the Act).
The case was considered by Mr Justice Floyd at first instance, who found that the action of replacing the bottle was not an act of "making". He formulated a simple test: to "ask whether, when the part in question is removed, what is left embodies the whole of the inventive concept of the claim”. A number of German cases in relation to the same issue were cited during the proceedings and referred to in the judgment (of relevance because the statutory wording in issue in England and Germany is derived from the same source, namely the Community Patent Convention). They suggest a multi-factorial approach to the test of whether an activity constitutes “making”, including a consideration of where the inventive concept lies. For example, in the cases of Impeller Flow Meter (Case No X ZR 48/03) and Wheel Tread (Case No X ZR 45/05), the German courts held that the replacement of a part subject to wear and tear and so expected to be replaced during the service life of the device will not usually constitute “making”. Mr Justice Floyd did not consider this, and a number of other factors raised by the German courts, to be relevant.
Lord Justice Jacob gave judgment in the Court of Appeal. He reversed the first instance decision. The “whole inventive concept” test put forward by Mr Justice Floyd was rejected as “likely to be fuzzy and uncertain”. In his opinion, the difficulty of determining what constitutes the whole inventive concept of a patent renders the test impractical.
LJ Jacob noted that if there was infringement, Schütz would have a monopoly in unpatented replacement bottles for their cages. However, he considered this “essentially economic concern” not a relevant issue for the court. He referred with approval to the old UK case Canon v Green Cartridge  AC 728, a copyright case relating to copies of replacement Canon cartridges for Canon printers. Here, fitting a new cartridge was not found to be an exception to copyright infringement. Any anti-competitive or public interest issues arising from this decision were not a consideration for the courts, but were questions of economic policy to be considered by specialised bodies, such as competition authorities.
LJ Jacob held that Schütz v Werit should be determined by the case of United Wire Ltd v Screen Repair Services (Scotland) Ltd  All ER 353. This case involved patents for sifting machines used to filter mud used in drilling for oil, consisting of a frame fitted with a mesh. The meshes could wear out in a day. The defendant took the patentees’s frames, stripped off the old, worn meshes, cleaned the frame and fitted new meshes. This was found to amount to “making”. LJ Jacob relied in particular on Lord Hoffmann’s reasoning in United Wire that when the mesh was removed, the product ceased to exist, and what was left was merely an important component from which a new screen could be made. The same reasoning was applied to the removal of bottles from IBCs.
Werit appealed the decision to the Supreme Court. Lord Neuberger (giving the judgment of the court) agreed with Mr Justice Floyd that the acts of Delta did not constitute making, therefore Werit could not be held indirectly liable for patent infringement (Werit's liability for contributory infringment had been agreed to stand or fall with this issue). However, he held that Mr Justice Floyd’s test for “making” was oversimplified, and the correct test involved a multi-factorial approach, more akin to the German position.
The court held that the word "makes" does not have a precise meaning, but rather a "slippery nature". It should be interpreted contextually, in a practical way, and it will be a matter of fact and degree whether an activity can be considered "making". Thus it is a matter of degree, to be assessed in each case, whether replacing a worn or damaged part of a patented article amounts to "making" the patented article.
In some cases the answer may be clear. For example, Lord Neuberger opined that it could not be plausibly contended that replacing the lid on the bottle would constitute "making" of the IBC, even though it would be unusable without the lid. It is not sufficient, as LJ Jacob had contended in the Court of Appeal, that without the replaced part the claimed invention ceases to exist. This is in accordance with the cited German case Pipette System (Case No. X ZR 38/06) (considered in detail at first instance), which held that the fact that a component part of a patented article is an essential means for carrying out the invention does not mean that its replacement will amount to making.
The instant case was not clear-cut, but was a classic example of identifying the various factors that applied and weighing them all up. Lord Neuberger based his assessment of whether Delta’s acts amounted to “making” on the broad question of whether the bottle is a "subsidiary part" of the patented IBC as a whole.
It was held that whether the replaced bottle included the inventive concept, or had a function which was closely connected with that concept, was relevant in determining whether the bottle was a subsidiary part of the IBC as a whole. Thus Mr Justice Floyd’s “whole inventive concept” test forms part of the assessment of whether replacing a component is “making”. On a straightforward analysis of the claims, the bottle did not include any aspect of the inventive concept of the patent. Lord Neuberger opined, contradicting the views of LJ Jacob, that identifying the inventive concept does not render this approach too uncertain since in most patents the claimed inventive concept is clearly identified or identifiable, and if it is unclear it will often be a dispute in the proceedings that the court is going to have to decide anyway.
Other factors relevant to the question of whether the bottle was subsidiary related to its physical properties. The fact that the bottle was an essential and physically large part of the patented article pointed in favour of the view that it was more than subsidiary. However, it is a question of degree, and these features were outweighed by the factors pointing towards the bottle being a relatively subsidiary part of the IBC, viewed as a whole. The following were determinative:
- it had a significantly lower life expectancy than the cage (five or six times shorter);
- it was less substantial than the cage, being made of plastic rather than metal;
- it was easily replaceable; and
- it could not be described as the main component of the patented article.
Lord Neuberger found that the reasoning in United Wire was consistent with the Supreme Court’s approach that “making” is a matter of fact and degree in each case. The Court of Appeal had erred in thinking that the outcome of United Wire was determinative for this case. In fact, the factors mentioned in Schütz v Werit could be contrasted with the situation in United Wire, where:
- the replaced part was not a free-standing item of property, and had no independent identity from the retained part;
- the replaced part was integrally connected to the retained part, so the reconditioner undertook a significant amount of demolition;
- the replaced part was subjected to significant improvement work; and
- the work involved could undoubtedly be described as manufacture.
In addition, in United Wire the inventive concept either resided in or was closely connected with the inventive concept.
The Supreme Court also considered the German case of Pallet Container II (Case No X ZR 97/11), based on the German equivalent of Schütz's UK patent. In this case, it was held that if the replacement of a part was seen, according to the prevailing market opinion, as re-manufacturing, then as a general rule there will be infringement. However, if it was seen as a repair, the opposite conclusion would probably apply. In relation to the distinction between "making" and "repair", Lord Neuberger held that the central question is whether the alleged infringer "makes" the patented article, however it may sometimes be a useful cross-check to consider whether its activities involve repairing the original product.
It was held in Pallet Container II that if used IBCs requiring replacement of the bottle were viewed as "practically worthless in the prevailing opinion of the purchasers of such containers", then replacing the bottle would be considered "making". The court therefore remitted the case for a determination as to the proportion of used IBCs passed on for no consideration.
Lord Neuberger agreed that the question of whether the end-user is paid for a used patented article (here the IBC) could have relevance, but would be just one factor and would have to be approached with caution. Unlike in the Pallet Container II case, he did not consider it appropriate to remit the case to a first instance hearing. If an article has no value when it has been used, but substantial value after it has been worked on, that could be a factor in favour of the work amounting to more than repair. However there might, for example, be considerable value to an end-user in having the used product collected by the reconditioner. There was no evidence in this case to enable to court to assess the factor, however Lord Neuberger noted that it was unlikely that any such evidence would have affected the outcome.