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Newellite Glass Tile Company Ld. v. Lawson's Non-conducting
Composition Ld.

less important question than the other, and if the Defendants' case depended entirely upon that I should have had much more doubt than I now entertain; but considered with the other it strengthens their position, and to my mind makes it irresistibly strong that they have done something different from that which the Patentees describe, and that they have not infringed the Patent. There must, therefore, be judgment for the Defendants with costs.

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IN THE HIGH COURT OF JUSTICE.-CHANCERY DIVISION.

Before MR. JUSTICE PARKER.

December 3rd and 8th, 1906.

HENDERSON v. SHIELS.

Patent.-Agreement for sole licence.-Actions for royalties.-Guarantee of validity. Condition or warranty.-Patent admitted at trial to be invalid.Counterclaim for damages.-Actions dismissed with costs.-Judgment for Defendant on counterclaim for royalties paid, without costs.

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The Plaintiffs entered into an Agreement with the Defendant to procure to 15 him the grant of a sole licence to manufacture and sell under a Patent. By the Agreement the Defendant became bound to accept the licence and to pay monthly in advance royalties calculated on a certain guaranteed minimum number of machines sold by the Defendant; the contract was to be binding for one year from the commencement of the payment of royalties, but the Defendant 20 had an option of renewal yearly. The Plaintiffs agreed to guarantee and uphold the validity of the Patent and to protect the licensee from infringement. The Defendant manufactured machines under the Patent and made three monthly payments of royalties. Then, on the ground that the Patent was invalid, the Defendant refused to pay further royalties and claimed to be 25 indemnified for his expenses incurred in the manufacture, including the royalties paid. The Plaintiffs commenced an action claiming payment of the

Henderson v. Shiels.

royalty for the fourth month, and subsequently commenced a second action claiming payment of royalties under the Agreement and an account of the machines manufactured by the Defendant. The actions were consolidated. The Defendant pleaded that no licence had been granted, and that the Patent 5 was invalid, and he counterclaimed for damages for breach of the guarantee of validity. The Plaintiffs in their Reply alleged that the Defendant was estopped from denying the validity of the Patent and from relying on the fact that no licence had been granted. At the trial it was admitted that the Patent was invalid, and that the Defendant had not manufactured or sold machines in 10 excess of the guaranteed minimum. The Defendant contended that the guarantee of validity was a condition entitling him to rescind the contract, and stated his willingness, if judgment was in his favour, to limit his counterclaim to the sums paid as royalty.

Held, that the Defendant was not estopped from denying the validity of the 15 Patent, and that the validity of the Patent was the basis of the Agreement. The actions were dismissed with costs, and on the counterclaim judgment was given for the Defendant for the sums paid as royalty, but, having regard to the form of the counterclaim, no Order was made as to the costs thereof.

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Nadel v. Martin (23 R.P.C. 41) followed.

By an Agreement dated the 26th of April 1904, and made between James Henderson and Francis Riddell Henderson, thereinafter called the first parties, of the one part, and Alexander Shiels, thereinafter called the second party, of the other part, after reciting that the first parties were entitled to call for, and "the Patentee" Charles Arthur Mercier was bound to isssue, a sole licence under his British 25 Patent, No. 12,562 of 1903, for "Improvements in time recorders," the first parties agreed to have issued to the second party or his nominees a sole licence for the manufacture and sale of time recorders under the Patent, and any additions thereto or improvements thereon by "the Patentee" upon the following conditions:-"(1) The second party agrees to pay to the first parties a royalty of 30 seven shillings and sixpence per machine sold by the licensee under the said "Patent and paid for, such royalty to be payable on a guaranteed minimum of fifty machines per week, and to be paid monthly in advance starting from the "time when manufacture commences. (2) The second party agrees to have "the manufacture of said machines started within three months from date hereof, or in default thereof to commence paying the royalties therein men“tioned. (3) This contract to be binding for the term of one year from commencement of payment of royalties, to be renewable yearly at the second party's option and terminable by him on his giving six months' notice to the "first parties. (4) In the event of the second party desiring the extension of 40" this contract as above provided the first parties shall receive royalties on a minimum sale of sixty machines per week, payments of same to be made monthly in advance. (5) The second party is further granted the sole rights "of sale of the said machines throughout the British Empire, and if he or his "nominee should desire to take out Patents in any of the Colonies in con45"formity with or based on the British Patent, No. 12,562 aforesaid, he or they are entitled to do so provided that such Patents shall revert to the first parties upon the second party or his nominee ceasing to exercise the licence. (6) The "first parties agree to guarantee and uphold the validity of the aforesaid British Patent, and to protect the licensee or licensees, or his or their nominees, from 50" any infringement of said Patent.'

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Henderson v. Shiels.

On the 24th of November 1904 James Henderson and Francis Riddell Henderson commenced an action in the King's Bench Division of the High Court, by specially endorsed writ, against Alexander Shiels for the amount due for royalties on the Patent under the Agreement. By their Statement of Claim the Plaintiffs alleged that the Agreement was modified by a letter dated the 5 22nd of July 1904 to the extent that the Plaintiffs agreed to forego one month's minimum royalty, amounting to 811. 5s., the Defendant agreeing that such deduction should be spread equally over the first eight months' royalties accruing due. The Plaintiffs alleged that the Defendant had made default in payment of the royalty due on the 26th of October 1904, and by their Particulars 10 alleged that the amount due was 717. 1s. 10d., being 817. 5s. less 101. 3s. 2d., the deduction as agreed.

The Defendant delivered a Defence and Counterclaim and, pursuant to an Order, delivered Particulars and Further Particulars of special damage alleged to amount to 18147. Os. 4 d., and the Plaintiffs delivered a Reply.

On the 1st of June 1905 the same Plaintiffs commenced another action against the same Defendant, by ordinary writ with unliquidated demand, their claim being for royalties under the Agreement and for an account of the machines manufactured by the Defendant.

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On the 20th of June 1905 the actions were ordered to be consolidated. The Defendant by his amended Defence alleged as follows :-(1) He admitted the Agreement but said that it was not sufficiently or accurately stated in the Statement of Claim, and that by it the Plaintiffs agreed to guarantee and uphold the validity of the Patent and to protect the Defendant from any infringement. (2) The licence referred to in the Agreement had never been granted. (3) 25 Relying upon the Agreement and the validity of the Patent (therein called the Mercier Patent) the Defendant commenced to manufacture a time recorder, which he called "Kosmoid A," and he expended a large sum of money in labour and buying materials for the manufacture, and he also paid the sum of 2137. 7s. 6d. by way of royalties to the Plaintiffs. (4) Shortly before the 24th 30 of October 1904 the Defendant was threatened with proceedings for infringement of the Patent of Watson by the Watson Machine Company, of Erie in the United States of America, in respect of the said manufacture and at or about that date he learnt that the Company were about to manufacture and put upon the market time recorders made in accordance with the Mercier Patent. 35 On the 1st of November 1904 he had informed the Plaintiffs that he had ascertained that the Mercier Patent had been anticipated, and he had called upon them under their guarantee to repay the expenses which he had incurred. (5) By reason of the anticipation of the Mercier Patent by the Specifications of Watson and others, thereinafter referred to, no competitor of the 40 Defendant could be prevented from manufacturing or selling time recorders made in accordance with the Mercier Patent, and the "Kosmoid A" time recorder could not be made and sold at a profit. (7) The Patent was invalid. (8) The Particulars of Objections to the validity of the Patent were as follows :— (a) The alleged invention was not new. (b) The invention was not subject- 45 matter for Letters Patent. (c) The Specification was insufficient and misleading. (d) The alleged invention was previously to the date of the Patent published within this realm in the six Specifications therein mentioned. (e) The method of working the flexible discs as set forth in the Specification and Claim 2 thereof was impracticable. (f) The use of a thumb or finger mark for identification 50 and the use of a time recorder as described in Claim 3 of the Specification were both common knowledge. The Defendant stated (8) that Amended Particulars of the money expended as alleged in paragraph 3 of the Defence were delivered therewith, and that 250 "Kosmoid A" machines had been manufactured and the same had been delivered on sale or return at the price of 21. 4s. 10d. 55 each. In the Particulars credit was given for the labour and material expended upon the machines, and also for the value of the unused materials. The A

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Henderson v. Shiels.

Defendant also alleged (9) If the Patent had been valid the licence would have been of great value to him but that, under the circumstances, it was valueless.

The Defendant delivered with his Defence a Counterclaim, in which (10) he 5 repeated paragraphs 1 to 9 of the Defence, and alleged (11) that by reason of the invalidity of the Patent he had suffered damage, and (12) that if he was liable to pay any further royalties under the Agreement he ought to be indemnified against payment by the Plaintiffs. He counterclaimed for 15007. damages; and for a declaration that the Plaintiffs ought to indemnify him against pay10 ment of royalties under the Agreement.

The Defendant also delivered amended Further Particulars of special damage, the alleged amount being reduced to 4777. 1s. 10d.

By their amended Reply the Plaintiffs alleged as follows :-(1) The Defence afforded no defence to the action; the validity of the Patent had not been 15 attacked, and the Defendant had not called upon the Plaintiffs to defend or uphold the same. (2) The Defendant was a licensee under the Patent and was not entitled to dispute the validity of it during the term of the licence. (3) In further reply to paragraph 2 of the amended Defence the Plaintiffs said that the Defendant was estopped from setting up the absence of a licence by reason 20 of the fact that he had never called for the licence, but had continued to act as if the licence had been granted. They also said that they had always been ready and willing to grant licences. (4) Save as aforesaid the Plaintiffs joined issue. (5) And by way of Defence to the Counterclaim, the Plaintiffs repeated paragraphs 1 and 2 of their Reply, and said that the Counterclaim disclosed no 25 cause of action against them. (6) The Patent was not invalid. (7) The Plaintiffs denied each and every allegation contained in paragraphs 3 and 4 of the Defence. (8) The alleged damage was too remote.

The Defendant, in answer to Interrogatories, said that he had not called upon the Plaintiffs to grant formal licences; that he had made or caused to be 30 made about 250 machines under or in pursuance of the Agreement; that he had begun to make the machines, or to cause them to be made, about the end of July, and had ceased to make any of them, or to cause any of them to be made, at the end of October or the beginning of November 1904; that he had not called upon the Plaintiffs to uphold the validity of the Mercier Patent except 35 by his Defence to the action; that the Patent had been attacked by himself in the action, and that he had been threatened with proceedings for infringement of the Patent referred to in paragraph 4 of his amended Defence as therein alleged with the result therein stated, but that, save as aforesaid, to the best of his knowledge, information and belief the Mercier Patent had not been 40 attacked; that he did not know whether anyone other than himself or his licensees or agents had made time recorders in accordance with the Mercier Patent, but that he believed that the Watson Machine Company, referred to in paragraph 4 of the Defence, had done so; that of the parts referred to in the Defendant's original Particulars and not claimed for in the amended Particu45 lars, some had been used in the manufacture of the machines made by the Defendant or caused by him to be made, as mentioned above; others had been capable of use in the manufacture of "Kosmoid B" machines; others had been sold and the remainder had not been delivered, and the Defendant had been able cancel delivery. With respect to the time at which the said parts were used, 50 some were used in the manufacture of the 250 "Kosmoid A" machines before the end of October or beginning of November 1904, and after that date some were used in the manufacture of "Kosmoid B" machines; the remaining parts, being those claimed for, had become useless when the Defendant discovered that the Patent was invalid.

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On the 13th of November 1905 the Defendant gave to the Plaintiffs six months' notice of his intention to determine the Agreement, if it had been renewed, which he denied, or if it was then in existence, which he also denied ;

Henderson v. Shiels.

that if any such notice was necessary, which he denied, the Defendant contended that a sufficient notice was contained in the correspondence between the parties before action brought; and that the notice was given without prejudice to the Defendant's contentions that the Mercier Patent was invalid and that the Agreement had already determined.

The invalidity of the Patent was (without prejudice to their plea of estoppel) admitted by the Plaintiffs at the trial, and it is therefore unnecessary to set out the Specification in this Report.

The consolidated actions were transferred to the Chancery Division and came on for trial on the 3rd of December 1906 before Mr. Justice PARKER.

T. Terrell K.C. and R. F. Colam (instructed by Bowkers) appeared for the Plaintiffs; Bousfield K.C. and Kerly (instructed by Cartwright and Cunningham) appeared for the Defendant.

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Terrell K.C. opened the Plaintiffs' case.-The only point is estoppel. [Bousfield K.C.-The action is defective for want of parties; the Patentee 15 ought to be joined. The Plaintiffs have no interest in the matter; no licence has been granted. All hinged on the word "sole"; the Defendant has not acted as if he had a sole licence-merely as if he had a licence. He only agreed to pay royalties on that basis. The Defendant is ignorant of the relations of the Plaintiffs with the Patentee; a stranger to the Patent is coming to the 20 Plaintiffs for the benefit of the Patent.] The Defendant is not entitled to have the Patentee joined. The Defendant has carried on business under the Agreement. [Bousfield K.C.-At the end of two or three months the Defendant repudiated the Agreement on the ground of invalidity of the Patent.] The Defendant is estopped from denying the Plaintiffs' right. [PARKER J.-The 25 Agreement is not under seal; a recital alone will not operate as an estoppel.] It is not pleaded that the Plaintiffs could not grant a licence, and the Defendant has manufactured under the Agreement. The granting of a licence is not a condition under the Agreement. Nadel v. Martin (23 R.P.C. 41) was a vendor and purchaser case. A Patent is a franchise (Regina v. County Court Judge of 30 Halifax 8 R.P.C 338; L.R. (1891) 1 Q,B. 793 and 2 Q.B. 263). [PARKER J.What does "guarantee" mean?] Clause 6 of the Agreement contemplates an attack by third parties. [Mills v. Carson (10 R.P.C. 9) was referred to.] It is not necessary that there should be a decree declaring the Patent void. [Adie v. Clark (L.R. 3 C.D. 134, at page 144) and Lawes v. Purser (6 E. & B. 930) were 35 referred to.] A tenant cannot dispute his landlord's title. This is not a case of estoppel by deed-the Defendant went into possession and used the invention and manufactured. The question is-What is the true construction of the Agreement? [PARKER J. referred to Frost on Patents, 3rd edition (1906) vol. 2, page 150.] In Hayne v. Maltby (3 T.R. 438; 1 Webst. P.C. 291) fraud was 40 alleged. A Patent is not a right to do a thing; it is a right to prevent others doing it. Clause 6 in the Agreement is not a condition. The Defendant cannot act under the Agreement and repudiate it. He may have to prove his damage. If the Patent were superseded the damage would not be the sum the Defendant has paid to the Plaintiffs or contracted to pay them. In any case, even if the 45 Defendant did not renew the Agreement the royalties would be payable until the 26th of July 1905. The Defendant continued to make the articles under a licence, and he would be entitled to sell them. He has been selling "Kosmoid "B"; that may be within the licence, and therefore the Plaintiffs ask for an account of the machines as well as payment of royalties.

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Bousfield K.C. opened the Defendant's case. It is not sufficient for the Plaintiffs to say that the Defendant has been acting under a licence and has never asked for one; the Agreement is for the grant of a sole licence. The Defendant has a guarantee that the Patent is valid; now it is admittedly invalid. The Defendant has had the expense of starting a new undertaking. 55 The Agreement is for a year in a sense, but the Defendant can hold the Plaintiffs to it for the whole life of the Patent, and the Defendant would never

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