BUSINESS AND PROPERTY COURTS
INTELLECTUAL PROPERTY LIST (CHANCERY DIVISION)
PATENTS COURT
Fetter Lane, London, EC4A 1NL |
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B e f o r e :
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Between:
PARAINEN PEARL SHIPPING LIMITED
SMT SHIPPING (CYPRUS) LIMITED
EUREKA SHIPPING LIMITEDClaimants
– and –
KRISTIAN GERHARD JEBSEN SKIPSREDERI AS
KGJS CEMENT AS
KGJ CEMENT ASDefendants
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Tom Moody-Stuart QC and Lindsay Lane (instructed by Stephenson Harwood LLP) for the Claimants
James Abrahams QC and Kathryn Pickard (instructed by Bristows LLP) for the Defendants
Hearing dates: 17-21, 25 September 2018
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Crown Copyright ©
- The First Claimant (“PPS”) owns a ship now known as the M/V Nordanvik (“the Vessel”), while the Second Claimant (“SMT”) and the Third Claimant (“Eureka”) are respectively the technical and commercial managers of the Vessel. The Claimants claim declarations to the effect that the use of the Vessel in the United Kingdom will not infringe European Patent (UK) No. 2 032 426 entitled “System and method for discharge of bulk material from a ship” (“the Patent”) owned by the First Defendant (“KGJS”). The Second Defendant (“KGJSC”) and the Third Defendant (“KGJC”) are companies in the same group.
- The Vessel incorporates a pneumatic cement discharge system in accordance with the Patent (“the System”). The Claimants do not dispute that the System falls within all the product claims of the Patent or that the method of operation of the System falls within all the method claims of the Patent. Nor do the Claimants challenge the validity of the Patent. Instead, the Claimants rely upon the fact that the Vessel was previously owned by KGJSC. The Claimants contend that, by selling the Vessel and/or entering into an insurance settlement, the Defendants have exhausted their rights under the Patent in relation to the System or have impliedly licensed the use of the System or are estopped from asserting the Patent against the Claimants with respect to the use of the System.
- Much of the dispute turns on the fact that the Vessel ran aground in November 2008 and was extensively flooded. KGJSC declared the Vessel a total constructive loss and claimed on its insurers. The insurers accepted the claim, but did not acquire title to the Vessel, which was sold successively to Cemet Shipping Company SA (“Cemet”), Esmenet Shipping Co SA (“Esmenet”) and PPS. The Defendants contend that the System which they installed on the Vessel was effectively destroyed by the flooding, and that it has subsequently been replaced i.e. a new System has been manufactured. The Claimants contend that the System was merely damaged as a result of the flooding, and that it has subsequently been repaired partly by the intervening owners and partly by the Claimants.
- There are parallel proceedings in Norway in which the Defendants allege infringement by the Claimants of the corresponding Norwegian patent. By a judgment dated 18 April 2018 the Oslo District Court rejected the Claimants’ challenge to the validity of the Norwegian patent and their substantive non-infringement argument, but held that the System had been repaired rather than replaced and that KGJS had exhausted its rights as a result of the insurance settlement. The Defendants have appealed against this decision.
- The Claimants relied upon the evidence of four factual witnesses. Kai Grøtterud is Chief Executive Officer and part owner of Eureka, and a director of PPS. Mr Grøtterud dealt with the background to PPS’s purchase of the Vessel. Counsel for the Defendants submitted that Mr Grøtterud’s evidence was not satisfactory and that, at points, it was influenced by what he thought best served the Claimants’ interests. I do not accept this; but on the other hand, the documentary evidence shows that in certain respects Mr Grøtterud’s recollection was inaccurate and he could have accepted that more fully than he did.
- Håkon Nytun has been a consultant to Eureka since November 2011. Prior to that he was Vice President of Commercial at KGJC. Mr Nytun gave some evidence about what the Defendants knew about the Vessel and about PPS’s decision to purchase it. Counsel for the Defendants relied on the fact that Mr Nytun conceded in cross-examination that a couple of points made in his written evidence were incorrect as casting doubt on the reliability of the remainder of his evidence, but I do not accept that this follows.
- Sjur Steimler is the owner of Steimler Shipbrokers of Bergen in Norway, and was involved in the sale of the Vessel from KGJSC to Cemet in January 2009 and the sale from Esmenet to PPS in 2012. No criticism was made of his evidence.
- Janusz Sienkiewicz has been Director of Fleet Operations at SMT since 1 January 2018. Prior to that he had been the General Manager Fleet Service of SMT for 10 years. He gave evidence about the work done on the Vessel following its purchase by PPS. Counsel for the Defendants pointed out that, as Mr Sienkiewicz accepted, his evidence was largely based on reports from others and documents he had seen, but nevertheless counsel accepted that he had given his evidence fairly.
- The Defendants relied upon the factual evidence of two witnesses. Jan Pedersen has been the Chief Executive Officer and a director of KGJS since 1993. Mr Pedersen gave evidence about the commercial background to the dispute between the parties. No criticism was made of his evidence.
- Oddleiv Humlestøl is the inventor of the invention claimed in the Patent. He was employed by KGJS from 4 January 1974 to 30 June 2012 in successive capacities, finishing as Project Manager. Throughout his time at KGJS he specialised in cargo handling and cement systems. Mr Humlestøl visited the Vessel in the Oslo Fjord on a number of occasions following its grounding and was asked to advise KGJS on the extent of the damage both at that time and later on. Since 2012 Mr Humlestøl has acted as a consultant to KGJS.
- Counsel for the Claimants made no personal criticism of Mr Humlestøl, but submitted that, owing to the manner in which his evidence had been prepared, no weight could be placed upon it save where it was supported by reliable documentary evidence. In this regard counsel relied upon three points.
- First, significant parts of his evidence were not entirely his own work, but the product of teamwork involving two other employees of the Defendants as well as the Defendants’ solicitors.
- Secondly, parts of Mr Humlestøl’s first statement constituted opinion evidence. For example, in paragraph 26 he said, “Bristows have asked me to describe the damage to the components of the blow tank shown in [a photograph] and explain the work that would be required to make these components functional again based on my experience of the installation and maintenance of cement unloading system on KGJS’ Vessels”. This evidence was plainly inadmissible. When the Claimants pointed this out, the Defendants attempted to make the evidence admissible by inserting the words “I understood at the time from my inspections” and changing the tense of what followed from present to past. As Mr Humlestøl accepted, however, he had made no attempt actually to remember what he had thought at the time in this regard.
- Thirdly, Mr Humlestøl resiled from a couple of points in cross-examination.
- Although I agree that the second point means that the attempt to transform the inadmissible evidence into admissible evidence failed, I do not accept that these points justify the conclusion that Mr Humlestøl’s evidence should be given no weight. Mr Humlestøl’s reliance upon information from other employees of the Defendants was less extensive than Mr Sienkiewicz’s reliance upon information from others, and his concession of a couple of points does not undermine the rest of his evidence any more than Mr Nytun’s.
- The Claimants’ technical expert was Ulf Jakin. He trained as an engineer at Fyrisskolan Uppsala College in Sweden, graduating in 1979. He has worked for a series of companies as a mechanical engineer in material handling since 1979. From 1996 to 2008 he worked for BMH Marine AB as a project manager on bulk handling systems for cement carrying vessels. During his time there BMH delivered around 40 cement carriers with pneumatic discharging systems on board. His work included managing the initial design and installation of these systems and also any follow-up work that needed to be done. He was involved both in converting bulk carriers into cement carriers and in installing discharging systems on new vessels. On the other hand, he did not have experience of maintaining a cement unloading system in normal operation. Nor did he have experience with the patented system. From 2008 to 2011 Mr Jakin ran a consultancy company specialising in bulk handling equipment for vessels in the oil industry. Since 2011 he has worked as a project manager in various industries.
- Counsel for the Defendants pointed out that Mr Jakin had been inconsistent in criticising Mr Humlestøl for drawing conclusions from photographs when he had done the same thing. Mr Jakin accepted this when it was put to him. I do not consider that this, or a couple of other criticisms of his evidence, leads to the conclusion that he was doing anything other than doing his best to assist the court.
- The Defendants’ technical expert was John Stenvik. He has a degree in Marine Engineering. From the mid-1990s to 2005 he worked for the Jebsen Group in various countries. During this time he worked on the conversion of two bulk carriers to cement carriers. He moved to Florida in 2005 to work for Belden Shipping with responsibility for cement vessels. After KGJS acquired Belden in 2007, he worked for KGJS as a contractor. Since 2012 he has been a Partner and Principal Surveyor for Independent Maritime Consulting, which provides claims handing assistance to insured companies. Although Mr Stenvik has experience of cement systems designed by a number of manufacturers, his only experience of the system covered by the Patent was when he assisted with salvage operations following the grounding of a vessel called the Cembay on which the system was installed in Mexico in April 2008.
- Counsel for the Claimants submitted that no weight should be given to Mr Stenvik’s evidence because it was based on Mr Humlestøl’s evidence: Mr Stenvik had not started afresh and formed his own conclusions, but was given Mr Humlestøl’s evidence and asked whether he agreed with it. As counsel for the Defendants pointed out, however, Mr Jakin was also asked to comment on Mr Humlestøl’s evidence. A separate point made by counsel for the Claimants is that it appears from Mr Stenvik’s oral evidence that in at least one respect the extent of his agreement with Mr Humlestøl was overstated in his written evidence. Again I am sure that Mr Stenvik was doing his best to assist the court, but this factor means that his evidence has to be approached with a degree of caution in so far as it is based on an apparent agreement with Mr Humlestøl.
- The Claimants’ expert was Haakon Stang Lund. He graduated from the Law Faculty of the University of Oslo in 1968. Following work for the Ministry of Justice and as an assistant judge, he joined the Norwegian law firm Wikborg Rein in 1970. From 1978 to 2008 he was a partner in the firm specialising in maritime insurance law. From 2008 to 2015 he worked for Norwegian Hull Club as an in-house lawyer. Since then he has acted as an arbitrator and mediator in insurance disputes. Mr Stang Lund sat on the Norwegian Maritime Insurance Plan (“the Plan”) revision committee from 1993 to 2015 and was involved in drafting the revisions to the 2007 version of the Plan.
- The Defendants’ expert was Professor Trine-Lise Wilhelmsen, who is a professor and doctor of law at the Scandinavian Institute of Maritime Law. She has been at the Institute since 1989, a professor since 1995 and was its Director from 2006 to 2017. She has published numerous books and articles on Norwegian maritime insurance law and related topics. She is the co-author, with Professor Hans Jacob Bull, of the Handbook on Hull Insurance (first edition 2007, second edition 2017), which was cited by Mr Stang Lund in his first report.
- It was sensibly agreed between the parties that the evidence of the legal experts should be served sequentially and that there would be no cross-examination. As one would hope, the scope of the disagreement between the experts is narrow.
- The invention described and claimed in the Patent lies in the field of pneumatic powder unloading systems, i.e. those in which compressed air is used to transport the powder to shore, as opposed to mechanical systems. It is convenient to consider the common features of such systems at the priority date, before looking at the three main pneumatic systems on the market at that time, namely vertical screw systems, vacuum systems and screw pump systems.
- All the systems include cargo holds, where the powder is held during transport. These holds usually included sloped hold bottoms installed at an angle (8-9°) to aid the flow of powder towards the lowest point of the hold where it can be collected.
- The cargo holds include a fluidisation arrangement. A blower located outside the holds blows air to the hold bottoms through pipes (often known as fluidisation air pipes), which terminate underneath fluidisation canvas. This fluidisation canvas is located on the sloped hold bottoms and is held in place by fixation bars, which each comprise one steel bar and one rubber bar sitting either side of the canvas, secured in place by nuts and bolts. Typically, there will be valves between the fluidisation air pipes and the cargo hold floor which control the flow of air to the fluidisation canvas. The air blows through the fluidisation canvas, fluidising the loose powder in the cargo holds. The fluidised powder then flows down the sloped fluidisation canvas towards the lowest point of each cargo hold.
- Two of the systems include separate blow tanks (also known as pneumatic unloading pumps or pressure tank pumps) for discharge onshore. These tanks have a cargo inlet valve that is open during filling. Once the tank is full, the inlet valve will close creating a closed system. Compressors located in the cargo machinery room supply compressed air to the blow tanks via a pipe, which will increase the pressure. The fluidised cement is then discharged through outlet (or discharge) valves which open forcing the fluidised cement into the discharge pipes through which it will be blown ashore. The blow tanks also have a ventilation valve that can be used to vent the system.
- In the vertical screw system, the powder is conveyed between the hold and the blow tanks by means of a screw conveyor. The loading point for the vertical screw conveyor is located at the lowest point of the cargo hold. The screw transports the powder from the cargo hold bottom to a horizontal screw conveyor on deck, which then takes the powder to the centre of the vessel and into a buffer hopper. The blow tanks are directly under the buffer hopper. The blow tanks work in pairs: when one tank is filled with powder, compressed air is used to discharge the contents onshore whilst the other blow tank is filling up with cement from the buffer and as soon as the first tank is emptied the contents of the second tank are discharged.
- In the vacuum system, the powder is conveyed between the hold and the blow tanks by means of suction pipes positioned in the lowest point of the hold and operated by a vacuum pump, such that when the vacuum pump is turned on the fluidised powder is sucked up through the suction pipes and into the blow tanks (either directly or via a hopper).
- In the screw pump system, the powder is conveyed from the hold into the discharge pipes, without use of blow tanks, by means of a screw pump located at the same level as or below the cargo holds. The fluidised powder is fed by gravity directly from the cargo hold to either the top or the side of the screw pump where it is mixed with compressed air and pushed by the screw directly into the discharge pipe through a non-return valve, thereby ensuring that air does not flow backwards into the cargo hold. Unlike the vertical screw system and the vacuum system, a screw pump system is a continuous, rather than a batch, system.
- The Patent was applied for on 8 June 2007, claiming priority from Norwegian Patent Application NO 20062650 filed on 9 June 2006. The application for the Patent was published on 11 March 2009 and the Patent was granted with effect from 30 March 2016. The Norwegian patent was granted on 25 June 2012. The Patent was designated in 32 countries on grant, but has only been validated post-grant in the following 12 countries: Denmark, Finland, France, Germany, Ireland, Iceland, Netherlands, Poland, Portugal, Spain, Sweden and the UK.
- The specification begins at [0001] by stating that the invention relates to:
- Having stated at [0002] that the invention is particularly related to cement carrying vessels, but can also be used for other powdery cargoes, the specification explains at [0003]-[0005] that unloading appliances for cement can be divided into two main groups, mechanical or pneumatic. In mechanical appliances all transport occurs mechanically, whereas in pneumatic appliances air is used for transport of the cargo.
- The specification goes on to say at [0007]:
- The three steps are then discussed at [0008]-[0013]. In summary:
- The specification states at [0011] that step 1 consumes 10% of the energy, step 2 30% of the energy and step 3 60% of the energy.
- At [0014]-[0020] the specification describes the disadvantages of various prior art systems.
- The specification then states at [0021] that an object of the invention is:
- At [0024] the specification explains that the difference between traditional pneumatic systems and the invention:
- At [0025] the specification claims that the invention results in the following savings: 30% in energy consumption during unloading; 30% in climatic gases during loading; 25% in installation costs; and 25% in maintenance costs.
- At [0026] the specification states that to develop the new unloading system “modification and further development of the unloading pump has been necessary”. This is said to include development of a tank with side filling; modification of the piping arrangement for compressed air in and outlet for cement and air to reduce the height of the tank; and fitting of a newly developed nozzle that is used for fluidisation of the cement in the tank.
- After a consistory paragraph corresponding to claim 1 at [00027], various preferred embodiments of the system are then described at [0028]-[0033]. The specification states at [0034] that the invention also relates to a two-step method, with preferred embodiments of the method described at [0035].
- At [0036] the specification refers to the use of air-flushing nozzles as follows:
- Specific embodiments of the invention are described at [0037]-[0048] by reference to Figures 1-7. Figure 1 shows the system as a whole most clearly. I reproduce this annotated with the names of parts described in the text:
- The description of this Figure explains that the fluidisation arrangement is known and says that it “is preferably made up of, at least partially, the cargo hold bottom 12 comprising a number of valves/panels arranged for supply of air for the fluidisation of the powdery cargo 14 in the cargo hold 10″ (at [0038]). It refers again to “traditional installations” using a vacuum or screw (at [0039]) and explains again that the side filling of the pump of the invention allows it to be placed in or beside the cargo holds and thereby filled directly from the holds without the use of energy (at [0040]). The air-flushing nozzles are described again at the end of [0045].
- At [0048] the specification states:
- The experts were broadly agreed that what the Patent claims as inventive is a blow tank which is placed centrally in the cargo hold with the inlet at the same level as the cargo hold bottom, thereby removing the need for active transportation of the powder from the hold to the blow tank, since the powder can flow into the blow tank by gravity. On the other hand, the claimed system and method also require the presence of other components. As discussed below, the other components are relevant when considering the issue of manufacture; but the aspect which the Patent claims as inventive is particularly relevant.
- Broken down into integers and omitting reference numerals, claim 1 is as follows:
- Claims 2-8 add further features as follows:
- Claim 9 is a claim to a two-step method corresponding to claim 1. Claim 10 is to the method of claim 9 in which a constant stream of compressed air is supplied during the blowing out of the cargo. Claims 11 and 12 correspond to claims 7 and 8.
- Claim 1 requires that the System be a system “for unloading powdery cargo”. “For” in a product claim normally means “suitable for”: see Schenck Rotec GmbH v Universal Balancing Ltd [2012] EWHC 1920 (Pat) at [78]-[86] and the cases cited there. Counsel for the Defendants cited Qualcomm Inc v Nokia Corp [2008] EWHC 329 (Pat) at [72]-[74] as authority for the proposition that there is only infringement of such a claim where the apparatus is suitable for the intended purpose without modification. It depends on what one means by “modification”, however. As Floyd J (as he then was) pointed out in Qualcomm, an apparatus for toasting bread is suitable for that purpose even if there is no power supply and therefore no bread can be toasted. Supplying power does not change the apparatus. Equally, in my judgment, repairing the toaster does not amount to modification, for example if one replaces a fuse or solders a faulty connection. In other words, a product may be suitable for the intended purpose even if it needs repair. If what is required goes beyond repair, however, then the position is different.
- The relevance of this point is that the Defendants contend that, as at January 2009, the Vessel did not fall within claim 1 of the Patent and therefore their rights under the Patent cannot have been exhausted regardless of what happened subsequently. I will address that contention in context. At this stage it suffices to say that I do not accept the Defendants’ argument that the litmus test is whether the System was capable of unloading a powdery cargo in January 2009, because if it was not, it could not be suitable for that purpose. In my view this is too simplistic. It depends on why the System was not capable of unloading the cargo. If the only reason was that the engines supplying the System with power were out of action, but were capable of being repaired without difficulty, then I would regard it as clear that the System was suitable for unloading the cargo. But if what was required went beyond repair of the System, then it would be otherwise.
- Mr Humlestøl drew up with the assistance of the Defendants’ solicitors a list of 21 components identified by the letters A to U of the System as installed on the Vessel which featured extensively in the evidence. Mr Humlestøl accepted in cross-examination that his approach had been to identify every part that was used in the operation of the System, and thus he had included things like electrical equipment which were not mentioned in the Patent because the System would not work without them.
- Counsel for the Claimants divided Mr Humlestøl’s list into four categories as follows:
- Counsel for the Claimants accepted that the components in categories (i), (ii) and (iii) were relevant to the question of whether the System had been manufactured or repaired, but submitted that the components in category (iv) were not. Although it involves anticipating my discussion of the distinction between manufacture and repair to some extent, it is convenient to consider this point here.
- In my judgment, the components which are relevant to this question are those which are relevant to whether the System falls within one of the claims of the Patent. If the presence or absence of a component is material to whether or not a particular requirement of a claim is satisfied, then what is done to that component is relevant to the question of whether the System has been manufactured or repaired. If, on other hand, the presence or absence of a component makes no difference to whether or not any of the requirements of the claims are satisfied, then what is done to that component is irrelevant.
- Applying that test, I consider that the Claimants have drawn the line in the wrong place. By way of example, claim 1 requires “a fluidisation arrangement
in the cargo hold such that the cargo flows towards said central point”. The Claimants rightly accept that the fluidisation arrangement comprises the fluidisation panels and valves (item (g) in their list), but in my judgment it also includes the nuts, bolts and fixation bars which hold the fluidisation panels in place (item (o) in their list). Likewise I consider that most of the other components in category (iv) are also relevant.
- The exceptions are items Q (compressors), R (compressor engines) and U (electrical system). So far as Q and R are concerned, although claim 9 requires compressed air to be supplied, in theory the compressed air could be supplied from tanks without the need for compressors or compressor engines. As for U, on the whole, I do not consider that this is relevant. By way of illustration, the source of power on the Vessel is its auxiliary engines, which also supply power for other purposes. In my judgment, however, the question whether the System falls within claim 1 does not depend on the presence or absence of a power supply, because it would still be suitable for unloading cement without one for the reasons discussed above.
- Counsel for the Defendants submitted in closing submissions that, even if other elements of the electrical system were not required, a control system was required, in particular to put the methods of claims 9-12 into effect. This suggestion was not advanced in the Defendants’ opening skeleton argument, nor was it explored with either expert in evidence, however. Although it is fair to say that the Patent does envisage some kind of control system at [0048], in my view the degree of control which is necessarily required by the method claims, let alone the product claims, is fairly minimal. An on-off switch for each of the unloading pump (blow tank) and the compressed air source would appear to suffice.
- The Vessel was built as a general cargo ship. KGJSC purchased the Vessel in May 2005 for 6.125 million. KGJSC converted the Vessel into a pneumatic cement carrier in 2006 and named the Vessel the Crete Cement. As part of the conversion, KGJSC installed the System on board. The total costs of the conversion were US$5.281 million, not all of which were directly related to installing the System. Following the conversion, the Vessel was chartered as a cement carrier.
- It is common ground that, immediately before the grounding of the Vessel, the System fell within the scope of the Patent.
- On 19 November 2008, whilst carrying a cargo of about 5000 tons of cement, the Vessel ran aground in the Oslo Fjord and sustained considerable damage to the hull. Shortly afterwards the Vessel was beached just off Fagerstrand, where she remained until she was re-floated and towed to Holmestrand on 15 December 2008. Much of the Vessel was submerged during the period from 19 November to 15 December 2008.
- Mr Humlestøl visited the Vessel on 25-26 November 2008, 9-23 December 2008, 29 December 2008 8 January 2009, 22 January 2009 and 26-27 January 2009. Even after she was refloated, it was difficult and dangerous to access many parts of the Vessel since the parts that had been submerged were covered in oil and so the surfaces were very slippery. Nevertheless, Mr Humlestøl managed to access many parts of the System and took photographs. Other employees of KGJS also visited the Vessel during this period. In particular, photographs were taken by Captain Leif Birger Sture on 17 December 2008 and Goran Forberg on 11 January 2009.
- The Defendants started to offload some of the cement from the Vessel onto another of their vessels, the Shetland Cement, in December 2008. Since the System was not operable due to the flooding, the cement was unloaded using external equipment: sledgehammers (to break up hardened cement on top of cargo hold 2), hoses connected to the Shetland Cement’s vacuum system and temporary aeration equipment. Due to the risks and cost involved, offloading was abandoned in early January 2009. Approximately 3,850 tonnes of cement remained on the Vessel after offloading was abandoned.
- The Vessel was the subject of two insurance policies at the time of the grounding:
- The terms and conditions of the H&M insurance were those in the 2007 version of the Plan, which is governed by Norwegian law.
- Section 5-19 of the Plan provided:
- Section 11-3 of the Plan provided:
- The lowest estimate for the repairs needed to the Vessel (as a whole) was $12.57 million. Since this was greater than 80% of the insured value of the Vessel ($9.2 million), KGJSC was entitled to declare a total loss under section 11-3 of the Plan. By doing so, KGJSC would become entitled to payment of $17.25 million plus interest, that sum being made up of the insured value of the vessel ($11.5 million) plus Hull Interest ($2.875 million) and Freight Interest ($2.875 million).
- Alternatively, KGJSC could choose not to declare a total loss, in which case Codan would be obliged to pay the repair cost, but limited to the sum insured. On this basis, KGJSC would be entitled to payment of $11.5 million only, since the Freight Interest insurance and Hull Interest insurance would not be triggered. This would, however, have enabled the Defendants to keep the Vessel off the market.
- Unsurprisingly, KGJSC chose to make a declaration of total loss to Codan by letter dated 15 January 2009.
- By letter dated 19 January 2009, Codan responded:
- On 23 January 2009 a Statement of Compensation for Constructive Total Loss was issued by Codan. Under the heading “Adjuster’s Notes” it recorded that:
- There is a limited dispute between the Norwegian law experts as to the precise effect of the Plan in the period between 19 and 23 January 2009 which is discussed below.
- Following the waiver of Codan’s rights, Gard, as P&I insurer, became responsible for wreck removal, pollution prevention and cargo loss, subject to its Statute and Rules (“the Gard Rules”). Rule 40 of the Gard Rules required the realised value of the wreck to be credited to Gard.
- KGJSC received the payment under the H&M insurance between 29 January 2009 and 2 February 2009.
- Even prior to the declaration of constructive total loss, KGJSC and Gard had already jointly appointed a law firm, Wikborg Rein, to coordinate sale of the Vessel. It would have been open to KGJSC to pay Gard the value of the Vessel (approximately 210,000), in which case it could have retained ownership of the Vessel or scrapped it. As Mr Pederson accepted, either of these alternatives would also have enabled the Defendants to keep the Vessel off the market.
- As Mr Humlestøl accepted, it would have been possible for the Defendants to remove parts of the System (such as the fluidisation panels and blow tanks) from the Vessel before sale, although this would have had a cost. As it was, the Defendants did not even remove manuals and drawings for the System from the Vessel before sale.
- Wikborg Rein circulated a Notice of Sale for the Vessel as early as 23 December 2008. It stated that:
- There was nothing in the Notice of Sale to say that the Vessel could not be used as a pneumatic cement carrier.
- Two offers for purchase were received and negotiations for the purchase were commenced with Cemet on 16 January 2009. The Vessel was sold by KGJSC to Cemet under a Memorandum of Agreement dated 21 January 2009 (“the MoA”). The MoA is governed by English law. The MoA provided for the payment of the purchase price of 210,000 by Cemet to Gard.
- Clause 18 of the MoA, which was drafted by and included at the request of the Defendants, provided that:
- The sale of the Vessel was completed by a Bill of Sale executed by KGJSC on 23 January 2009.
- The Defendants’ understanding at the time of the sale was that Cemet intended to convert the Vessel to a bulk carrier. Cemet re-named the Vessel the Mario M.
- Shortly after the sale, the Defendants offered Cemet $90,000 for some of the equipment forming the System or associated with it, namely three Volvo Penta engines, three compressors, eight Warman valves, four Larox valves and three blowers. Cemet declined the offer saying that it was certain it could get a better price in Lebanon.
- As a result of the grounding, cargo holds no. 2 (starboard) and no. 3 (port and starboard) were flooded, as well as all three blow tanks. These and other parts of the Vessel remained submerged for over three weeks before it was re-floated.
- It is common ground, as at the date of the MoA, the System was not functional, in the sense that it was not capable of unloading cargo.
- The Claimants accept that some of components in categories (i), (ii) and (iii) were at least partly coated by cement, some of which was hardened: the cargo holds; the cargo hold bottoms; the blow tanks; the blow tank cargo inlets; the hold fluidisation panels; the blow tank inlet closing valves; the blow tank fluidisation panels and the air-flushing nozzles. The unloading outlet and compressed air inlet of the blow tanks may have been partly covered in cement, but the position is not clear.
- The Claimants also accept that other components in categories (i), (ii) and (iii) (namely the blow tank housings, the fluidisation valves for the holds, the air inlet for supply of fluidisation air to the blow tanks and the blow tank vents) were exposed to water, and may have been coated in oil, but not cement.
- As far as components in category (iv) are concerned, none of the air blowers, compressors, compressor engines or electrical system were covered in cement, but they were exposed to water. Likewise, the air pipes for the cargo holds and for the blow tanks were exposed to water but not cement. The same is true for the actuators. However, the fixation bars and associated nuts and bolts in the holds and blow tanks were at least partly covered in cement.
- There was some debate in the evidence as to the extent of damage which the cement and water caused. It is probable that there was only a thin layer of cement on the insides of the blow tanks (and discharge pipes) since they would not have been filled with cement at the time of the grounding. Similarly, it is probable that in the cargo holds there was a crust of hardened cement, while underneath that crust the cement was still a powder. On the other hand, it is likely that the cargo inlets to the blow tanks were full of hardened cement.
- As far as water damage is concerned, the inside steel walls of the cargo holds and blow tanks were protected against corrosion with primer and all the engines were injected with a chemical immediately after re-floating to preserve them until they could be overhauled; whereas electrical components such as switchboards and controls required replacing. It is probable that some of the electrical cabling needed replacing, but it is not clear how much.
- Although both sides adduced evidence as to what would have been required to put the System into working order as at the date of the MoA, in closing submissions both counsel accepted that this evidence was less probative than the evidence as to what was actually done subsequently by Cemet, Esmenet and the Claimants.
- It appears that the Vessel sailed from Haugesund to Constanta in Romania, where she stayed for two months, and then Media, where she was in dry dock for two and a half months while the steel was renewed where the Vessel had touched ground. After that the Vessel proceeded to Tuzla in Turkey where she spent six and half months in the Torgem shipyard.
- There is little evidence as to what work was done on the Vessel, and in particular the System, by Cemet. It appears from the email from Fearnleys to Mr Nytun dated 30 December 2009 referred to below that:
- In December 2009 the Vessel was sold by Cemet to Esmenet, with Esmenet being registered as the owner on 29 December 2009. The sale agreement between Cemet and Esmenet is not available, but there is no evidence that it contained any restrictions as to use of the Vessel or the System. Mr Steimler, who acted as broker for Cemet when it purchased the Vessel, gave evidence that Talal Dehni of Cemet had informed him that the sale agreement was nearly identical to the MoA, save that the clause 18 restriction was removed. Esmenet re-named the Vessel the Tiger.
- On 30 December 2009 Mr Nytun (then with the Defendants) received an email from a shipbroker at Fearnleys saying that the Vessel had been inspected by potential buyers. On 31 December 2009, Fearnleys reported by email to the Defendants that the Vessel was in Tuzla, Turkey.
- At this stage, the Defendants assumed that the Vessel was still owned by Cemet. Accordingly, in December and January 2010, the Defendants corresponded with Mr Steimler regarding the Vessel, the work done on it and its possible sale. In particular:
- At the end of January 2010 the Defendants asked some agents, Kalimbassieris Marine Consultants (“KMC”), to monitor the Vessel at the shipyard in Turkey.
- On 18 March 2010 Svein Jakobsen of KGJS inspected the Vessel in Turkey and took photographs. Mr Jakobsen attempted to do so incognito, but it appears that Esmenet became aware of who he was representing. He provided a brief report on the state of the Vessel at that time by email the following day, stating that he was “totally certain that it will come out as a cement ship again”.
- Mr Jakobsen reported in his email that the following work had been done:
- At around the same time, in March 2010, Esmenet invited Carmatec AB, a company specialising in the development and servicing of cargo handling equipment in cement carriers, to review the condition of the System and to quote for the equipment required to restore the System back to fully operational state. There is no contemporaneous documentary evidence as to what the Carmatec representative(s) saw or recommended, but this is described in a report commissioned by the Defendants from Carmatec for the purposes of the Norwegian proceedings dated 20 November 2017 (“the Carmatec report”). Counsel for the Claimants pointed out that there was no evidence from any witness from Carmatec and that it was unclear from the drafting of the report whether the author(s) was or were the same person(s) as the person(s) who attended the Vessel in 2010. Nevertheless, there is no suggestion that the report is inaccurate so far as it goes.
- According to the Carmatec report, the position in March 2010 was that:
- The Claimants contend that what is said in the Carmatec report about the valves is inconsistent with the Defendants’ report following their inspection in February 2011 (as to which, see below), which states that there were no signs that the valves in the void spaces had been overhauled. It is common ground that the valves in question are fluidisation valves in the void spaces under the cargo holds. It is possible that repair work was done on the fluidisation valves which the Defendants did not spot during their inspection, but I consider it improbable that the valves had been replaced, because the Defendants would have been likely to spot that. Moreover, the vague language of the Carmatec report does not compel the conclusion that the valves were replaced as opposed to being repaired.
- Carmatec’s quotation for some works was accepted, but not its quotation for “renewal of the mechanical outloading vertical screw and some other bits and pieces”.
- According to the Carmatec report, in April 2010, Carmatec installed a new control panel and a new programmable logic controller (PLC) and restored the power supply as well as Ethernet function. Carmatec then performed a dry-test of the entire control system to establish that all communication was working. Carmatec noted that most things tested were operating as they were supposed to, but the signal traffic to and from the PLC seemed to be somewhat unstable, possibly due to the old cabling having been exposed to seawater, which in large part had not been replaced.
- The Defendants received various offers of the Vessel for sale from April 2010, including circulars specifically offering the Vessel as a cement carrier. Nevertheless, the Defendants did not attempt to inspect or repurchase the Vessel or to object to it being used as a cement carrier.
- In emails in May and June 2010 KMC reported that no removal of the cement handling equipment or conversion of the Vessel to a bulk carrier had taken place. The Defendants did not raise any objection with Cemet or Esmenet. Mr Pederson gave evidence that the Defendants did not attempt to claim damages for breach of clause 18 of the MoA for cost reasons and because of the difficulty in proving loss.
- On 29 October 2010 the Defendants discovered that the Vessel had been sold to Esmenet.
- At some time in mid-late 2010, the Vessel left Turkey with a cargo of cement, arriving in Gioia Tauro in Italy in late November or early December 2010. Her presence in Italy was reported to the Defendants by their employee Maro Glanz, by email dated 7 December 2010. He stated that he had been informed that the Vessel had a full cargo of cement, but had problems with the engine and cargo discharging system.
- According to the Carmatec report, Carmatec was contracted to oversee the unloading operation at Gioia Tauro in December 2010. The report states that:
- On 4 January 2011 the Defendants received an email from Fearnleys saying that the latter had heard that the Vessel’s new owner wanted to know what buyers would be willing to pay for her as they wanted to leave the cement market due to lack of experience. The Defendants put out a feeler to see if the vendor would entertain an offer in the region of $2-3 million, but the response was that it would not accept anything less than $5 million. Nevertheless the Defendants thought that the vendor might accept $3.5-4 million, and decided to inspect the Vessel in order to assess her state.
- The inspection was conducted on 14 February 2011 by Captain Birger Sture and Leif-Roger Agasøster of the Defendants at Gioia Tauro, following which two reports of the inspection were prepared for consideration, the latter of which included cost estimates prepared by Mr Humlestøl for the work necessary to put the Vessel into a satisfactory state.
- The key points from these reports are as follows:
- The total estimated costs of the works required to the Vessel (including a 5% contingency) was $9.312 million. Only about $2 million of this related to the System. $2 million was included for replacing 80 km of cables.
- After internal discussion of the pros and cons of repurchase of the Vessel in May 2011, the Defendants decided not to do so and informed Fearnleys of this decision by email dated 10 May 2011. One of the pros considered was that it would prevent the Claimants from purchasing the Vessel. Mr Pedersen accepted that he knew that the Claimants would be interested in buying the Vessel. A possible con was how the purchase would look to Codan given its payout of $17.25 million.
- The Defendants continued to receive offers for sale of the Vessel as a pneumatic cement carrier throughout 2011. With the exception of the email chain set out above, at no time during its ownership by Esmenet was any objection made by the Defendants about the use or sale of the Vessel as a pneumatic cement carrier or the use or sale of the System on it.
- Like the Defendants, the Claimants also received numerous notices advertising the Vessel for sale as a cement carrier from Spring 2010 onwards. The Claimants did not pursue the Vessel in 2010 since they thought the price was too high. By early 2011, however, the Claimants were looking to replace one of their cement carriers (the Envik) with a bigger vessel of a higher ice class at the request of one of their time charterers and the asking price of the Vessel had dropped considerably from $8 million to $3.5 million.
- Therefore, in the first half of 2011, the Claimants discussed the Vessel with Faber Shipbrokers ApS (“Faber”). Faber told them in around April/May 2011 that the Defendants had inspected the Vessel in Italy a couple of months previously. As a result of this, when the Vessel remained on the market as a cement carrier, the Claimants assumed that the Defendants were not interested in purchasing the Vessel, must have been aware of the System on board and had seen how the Vessel had been advertised since 2010 as a cement carrier.
- In November 2011 Mr Nytun moved to the Claimants. Shortly afterwards, Mr Grøtterud asked him if he had any opinion about the Vessel. Mr Nytun told him that:
- In relation to point (ii), counsel for the Defendants pointed out that it is clear from the documentary evidence that Mr Nytun had been aware in December 2009 of the terms of clause 18 and submitted that it was likely that in fact Mr Nytun had told Mr Grøtterud that the clause restricted use and re-commissioning as a pneumatic cement carrier. Both Mr Nytun and Mr Grøtterud gave evidence to the contrary, however, and I accept that evidence.
- Accordingly, in January 2012, the Claimants decided to inspect the Vessel and found it in better condition than they expected. At that stage the compressors seemed to be in good condition: one was working and two were due for overhaul. The Claimants made two further inspections in April 2012.
- As a result of these inspections, the Claimants thought it would take around two to three months to repair the Vessel, making it the most attractive option to replace the Envik. The Claimants therefore entered into a contract for lease of the Vessel to the time charterer on 25 June 2012.
- A price of $3 million was negotiated for purchase of the Vessel and PPS purchased the Vessel from Esmenet by a written Memorandum of Agreement dated 27 June 2012, but signed on 2 July 2012. The agreement contained no restrictions regarding use of the Vessel or the System.
- The Vessel sailed to Desan Yardgem shipyard in Tuzla where it arrived on 1 August 2012. Shortly afterwards 500 tonnes of loose dry cement powder that remained in the cargo holds following Esmenet’s abortive discharge in December 2010 were removed using external vacuum trucks.
- Meanwhile, in June 2012, the Norwegian patent had been granted and the Defendants had become aware of the fact that the Claimants were intending to purchase the Vessel. The Defendants sent a letter before action to the Claimants on 21 August 2012, but at that stage the complaint made was limited to a warning of possible breach of confidence by an ex-employee, Darko Gurdulic. He had installed the patented system on four of the Defendants’ vessels between 2006 and 2012 and had written the manual for the System on the Vessel. The Claimants engaged him to assist in getting the System up and running.
- Between August and November 2012, the Claimants committed significant money and resources to work on the Vessel. This required additional capital to be raised when it became apparent that more work was needed than initially thought. In total the work cost about $4 million, of which about $990,000 was spent on work on the System. (This sum includes some further work that was done when the Vessel went to Gioia Tauro in late November 2012 and Valletta in Malta in December 2012.)
- The following work was done by the Claimants in relation to the components listed by Mr Humlestøl:
- The Defendants contend that, as at January 2009, the System did not fall within the claims of the Patent, and thus this is not a case of a patentee selling a patented product. Accordingly, the Defendants contend, their rights under the Patent cannot have been exhausted as a result of the acts relied on by the Claimants: see Dellareed Ltd v Delkim Developments [1988] FSR 329 at 347. Furthermore, the Defendants say that the question of whether the restoration of the System after January 2009 constituted manufacture or repair is not the relevant question.
- As a matter of strict logic, the Defendants may be correct that, if the System did not fall within the claims of the Patent at the time of the MoA, then their rights under the Patent cannot have been exhausted. As discussed above, however, whether the System fell within claim 1 at that date cannot be reduced to the question of whether it was capable of unloading cement. The System was not functional, but if it was capable of being repaired, then it would still be suitable for unloading cement.
- Moreover, it is inherent in the Defendants’ case that what was done after January 2009 amounted to replacement of the System, that is to say, manufacture. Equally, it is inherent in the Claimants’ case that what was done after January 2009 constituted repair that the state of the System in January 2009 was such that it was susceptible of being repaired rather than replaced.
- If the System fell within claim 1 as at January 2009 because, although it was not functional, it was capable of being repaired, then I do not see that it makes any difference to the question of exhaustion that the System was not capable of implementing the method of claim 9 without being repaired.
- It follows that the Defendants’ attempted short cut does not work, and I must decide whether the System was repaired or replaced after January 2009. This does not mean that I shall ignore the evidence as to the state of the Vessel in January 2009. On the contrary, that is plainly a relevant part of the enquiry.
- The law as to the circumstances in which a person “makes” a product falling within the claims of a patent within the meaning of section 60(1)(a) of the 1977 Act (which gives effect to Article 25(a) of the Community Patent Convention) was considered by the House of Lords in United Wire Ltd v Screen Repair Services (Scotland) Ltd [2001] RPC 24 and reviewed by the Supreme Court in Schütz (UK) Ltd v Werit UK Ltd [2013] UKSC 16, [2013] 2 All ER 177.
- United Wire involved two patents for a screen consisting of a frame to which two meshes of different mesh sizes were adhesively secured at the periphery so as to be at different tensions. The meshes quickly become torn in use. The patentee therefore enjoyed an aftermarket in selling replacement screens made in accordance with the inventions. The defendants sold reconditioned screens made from the patentee’s own frames. The frames were made of metal, weighed about 10 kilos and were durable compared to the rest of the materials of the screen. The defendants acquired the frames from the patentee’s customers and stripped them down to the bare metal by sandblasting. They re-coated the frames with adhesive polyethylene and attached the two layers of mesh. The differences in the sizes of the mesh produced the necessary differential tensions when both were tensioned together. Heat was then used to bond the meshes to the polyethylene coating of the frame, the selvage of mesh around the frame was cut off and the edges were trimmed and taped.
- The House of Lords held that the defendants had made products in accordance with the patents. Lord Bingham of Cornhill and Lord Hoffmann gave reasoned speeches, with which the other Law Lords agreed. Lord Bingham thought the issue was simply whether the defendants had “made” the patented article, which was a question of judgment, and that it was better not to ask whether the defendants’ work involved “repair” because both remedial action to make good the effects of wear and tear and substantial reconstruction of the patented product with extensive replacement of parts might be described as “repair”. He saw no reason to disturb the Court of Appeal’s conclusion that the defendants had made the screen assembly claimed in the patents.
- Lord Hoffmann said that the real issue was whether the defendants had made the patented product. He quoted with approval a statement made by Lord Halsbury LC in Sirdar Rubber Co. Ltd v Wallington, Weston & Co. (1907) 24 R.P.C. 539, 543 that “you may prolong the life of a licensed article but you must not make a new one under the cover of repair”, but then he warned of the dangers of asking whether the work constituted repair. Having recorded the appellant’s submission that the question was one of fact and degree, and therefore the Court of Appeal ought not to have reversed the trial judge, he concluded at [73] by saying that:
- In Schütz v Werit the patent concerned intermediate bulk containers (“IBCs”). IBCs are large containers used for the transport of liquids. IBCs of a two-part construction resting on a flat pallet have been well known for many years. They consist of a metal cage into which a large plastic container (or “bottle”) is fitted. While the cage has a limited life-span, it has a significantly longer life expectancy than a bottle: on average, it is about five or six times as long. “Reconditioners” engage in “re-bottling” or “cross-bottling” used IBCs. In either case the old bottle is removed, any damage to the cage repaired, and a new bottle is fitted within the cage. Re-bottling involves replacing the bottle with a fresh bottle from the original manufacturer. Cross-bottling involves replacing the bottle with a bottle from a different source.
- The patented invention, of which Schütz was the exclusive licensee, concerned the use of the idea of flexible weld joints in the cage, to increase its strength and durability. More specifically, the inventiveness lay in the idea of introducing a dimple on either side of the weld and a central raised portion. Claim 1 of the patent was to a complete IBC i.e. a pallet, a bottle and a cage. The specification acknowledged that the bottle was “exchangeable” i.e. replaceable.
- Werit sold bottles for IBCs to a reconditioner, Delta. Delta used Werit’s bottles to cross-bottle cages from used Schütz IBCs. Schütz alleged infringement by Werit pursuant to section 60(2). The issue in the Supreme Court was whether Delta had made IBCs falling within claim 1 of the patent. The Supreme Court held that it had not.
- Lord Neuberger, with whom the other members of the Supreme Court agreed, set out in his judgment a number of considerations which should be borne in mind in interpreting the word “makes” in section 60(1):
- Lord Neuberger went on at [37]-[47] to consider the jurisprudence of the Bundesgerichtshof (German Federal Court of Justice) on this question. He also discussed at [48]-[53] the distinction between making and repairing, concluding that, while it should not be allowed to obscure the central issue of whether the alleged infringer “makes” the patented article, it may sometimes be useful to consider whether the alleged infringer is repairing rather than making the article. In this context he observed:
- Lord Neuberger went on at [61]-[72] to set out a number of factors which he considered relevant to the question of whether Delta’s activities amounted to making the patented articles. He began by saying that it was both legitimate and helpful to consider whether the bottle was such a subsidiary part of the patented article that its replacement, when required, did not involve “making” a new article. He acknowledged that the bottle was an essential and physically large part of the patented article, but nevertheless considered that the bottle could fairly be said to be a relatively subsidiary part of the article, viewed as a whole.
- In that regard, he said that two points were of significance. The first was that the bottle had a significantly lower life expectancy than the cage. The fact that one would expect the bottle to be replaced, on average, five or six times during the life of the cage supported the notion that it was a subsidiary part. Furthermore, whereas the cage was made of metal, the bottle was made of plastic, and thus relatively perishable. In those circumstances the purchaser of an IBC was entitled to assume, in accordance with Betts v Willmott (1871) LR 6 Ch App 239, that he could replace the bottle.
- The second point was that the bottle did not include any aspect of the inventive concept of the Patent. Lord Neuberger considered that it must be legitimate, in the context of addressing the question whether a person “makes” the patented article by replacing a worn out part, to consider whether that part includes the inventive concept, or has a function which is closely connected with that concept.
- Lord Neuberger then proceeded to highlight two contrasts between the facts of the instant case and those in United Wire. The first was that in United Wire, the replaced part, the wire mesh system, had no independent identity from the retained part, the frame. Hence it was possible for Lord Hoffmann to say that the original product ceased to exist when the meshes were removed. By contrast, in the instant case there were, as it were, two products (disregarding the pallet). The cage, which was significantly longer lasting, more substantial, and the only inventive component, did not cease to exist when the old bottle was removed.
- Secondly, there was a significant difference between the nature of Delta’s operations in the instant case and that of the defendants’ operations in United Wire. In United Wire, (i) the replaced part was integrally connected to the retained part, so the work included a significant element of demolition, (ii) the replaced part was subjected to significant improvement work, (iii) the inventive concept either largely resided in the replaced part (the first patent) or was closely connected to that part (the second patent), and (iv) the work involved could undoubtedly be described as manufacture. Merely replacing a damaged plastic bottle with a new plastic bottle within the cage, where the cage contained the inventive concept, was an exercise of a very different order.
- Lord Neuberger summarised his reasoning at [78] as follows:
- Although both United Wire and Schütz v Werit warn that what matters is whether there has been manufacture of the patented product, and that it can be misleading to ask whether the product has been repaired, it remains convenient to treat the two words as antonyms for the purposes of discussion.
- The assessment in the present case is complicated by three factors which it is worth addressing at the outset.
- First, it is common ground that it is necessary to take into account all the work done by Cemet, Esmenet and the Claimants between January 2009 and December 2012. There is no direct evidence from any witness as to what was done by Cemet or Esmenet, and the indirect evidence is somewhat incomplete and unclear. I have set out above my findings in the light of the available evidence.
- Secondly, it is also common ground that some of the work that was done by Esmenet was re-done by the Claimants. For example, the fluidisation panels were replaced by both Esmenet and the Claimants. It appears that one reason for this was that Esmenet did not do a very good job in carrying out some of the work that it had done. I do not understand it to be in dispute that it would not be correct to double-count such work when deciding whether what was done amounts to manufacture or repair.
- Thirdly, cement is a type of cargo that wears out loading and discharge equipment due to its abrasive qualities. The degree of wear and tear to be expected depends on how hard the equipment is being run, which is a commercial decision for the owner or charterer. Furthermore, the System comprised a number of components which interact with each other. The evidence shows that, if one component is poorly adjusted, it can cause increased wear and tear to other components. Again, it appears that this was the position during the period that Esmenet owned the Vessel. This may have been another reason why e.g. the fluidisation panels needed to be replaced again.
- Turning to the factors considered by Lord Neuberger in Schütz v Werit at [61]-[72], the position is as follows.
- Purchaser expectations. The Claimants contend, and I agree, that an important factor is that the patented system comprises a ship, which the purchaser would expect to be able to use for a very long time. Mr Stenvik’s evidence is that the lifetime of a commercial ship is normally calculated as 20-25 years, but may be up to 40 years. Furthermore, it is in the nature of ships that they sometimes encounter both natural and man-made hazards which result in damage being sustained. Accordingly, the purchaser would expect to have to carry out both regular, scheduled maintenance and unscheduled repairs from time to time during the life of the ship. Given that the System is key to the use of the Vessel as a pneumatic cement carrier, a purchaser of the Vessel would likewise expect to be able to carry out both scheduled maintenance and unscheduled repairs as and when necessary.
- Life expectancy of components. Quite a lot of evidence was adduced as to the expected frequency of maintenance of the various components listed by Mr Humlestøl. I do not regard this evidence as particularly significant, however. It is common ground that regular maintenance of many of the components would be expected to be required; but I do not understand it to be in dispute that the work carried out by Cemet, Esmenet and the Claimants went beyond what would be expected by way of regular maintenance. The fact that the work went beyond regular maintenance does not necessarily mean that it went beyond repair, however.
- Equally, the mere fact that components were replaced is not necessarily significant if they were ones which an owner would expect to have to replace periodically. An example of this is the nozzles (P). Although the Claimants replaced these, the maintenance records for both the Vessel and its sister ship the Cyprus Cement show that the nozzles are regularly replaced by the Defendants.
- What is more significant is the extent to which components which were replaced are ones which an owner would not expect to have to replace during the lifetime of the System. As to this, the following components were replaced which would not be expected to have to be replaced:
- In addition, the compressor engines (R) underwent a major overhaul with a significant number of parts being replaced. It appears that this went somewhat beyond what one would normally expect. On the other hand, the engines were not completely replaced.
- Subsidiary or substantial components. In my view the components which were replaced were subsidiary components of the System rather than substantial ones. The substantial components of the System, namely the cargo holds, cargo hold bottoms, the blow tanks and the inlets to the blow tanks, were not replaced.
- Independent identity. All of the components of the System had their own independent identity in the sense that they could be separately obtained; but on the other hand some had no commercial existence other than as part of the System. This is most obviously the case with the fluidisation panels, since they had to be made to measure to fit the cargo holds on the Vessel, although similar fluidisation panels were used in prior art systems.
- The inventive concept. The Claimants contend that none of the components which were replaced related to the key inventive concept of the Patent, namely the central positioning of the blow tanks in the cargo holds with the inlets at the same level as the cargo hold bottoms thereby enabling the powder to flow into the blow tanks by gravity. The cargo holds, cargo hold bottoms, blow tanks and inlets remained the same throughout the work done on the Vessel. I accept this analysis.
- Other factors. The Defendants rely upon a number of other factors as supporting the conclusion that what was done amounted to manufacture rather than repair. First, the fact that the System was not functional prior to the work being carried out. I accept that this is a relevant consideration, but I do not accept that it is a compelling one. For the reasons explained above, it may be perfectly possible to repair a patented product so as return it from a non-functioning state to a functioning one without doing acts which amount to manufacture.
- Secondly, the Defendants rely upon the fact that the Claimants engaged both CITASys and a Dutch firm called Asto to attend a test run of the System so as to deal with any problems that arose. The Defendants contend that this shows that the works were more akin to a fresh installation than repair. I do not accept this. The attendance of CITASys and Asto is explained by the fact that the System had not functioned correctly when the Vessel was owned by Esmenet and the Claimants wanted to ensure that it was fully functional. No doubt this went beyond routine maintenance, but that does not mean that it went beyond repair.
- Thirdly, the Defendants rely upon the fact that Cemet acquired the Vessel for just 210,000, whereas Esmenet spent some $2.5 million and the Claimants some $4 million on it. But these figures take into account work done on other parts of the Vessel. It was precisely because of the high anticipated cost of repairs that KGJSC declared the Vessel a total constructive loss. I accept that significant sums were spent on the works done on the System, and that that is a relevant factor to take into account, but I do not regard it as a strong one in favour of manufacture given the size and complexity of the System.
- Fourthly, the Defendants rely upon the contemporaneous statement by Mr Nytun in an email dated 28 December 2012, which Mr Sienkiewicz accepted was a fair assessment, that:
- I am unimpressed with this, however. The references to upgrading clearly relate to the Vessel as a whole. As for the statement that the System was “completely overhauled and renewed”, I consider that equally consistent with the System being repaired as with it being replaced.
- Overall assessment. In my view the strongest factor in favour of the Defendants’ case is the number of components which were replaced in whole or in part, and in particular the components which were replaced when one would not have to expect to replace those parts within the normal working life of the Vessel. Replacement of components, and in particular components that would not ordinarily be replaced as a result of wear and tear, is a clear pointer towards replacement of the System, that is to say, manufacture. But as Lord Neuberger pointed out in Schütz v Werit at [50]-[51], the fact that parts are replaced is not necessarily inconsistent with repair. Nor is the fact that parts are replaced because of some accident affecting the product in question rather than ordinary wear and tear.
- I consider it significant that the principal components which were replaced and which are relevant in the sense discussed in paragraphs 53-58 above are the fluidisation panels and fixation bars. Although one would not expect to have to replace all of the fluidisation panels in one go as a result of ordinary wear and tear, the fact remains that the fluidisation panels are made of canvas and thus inherently much less durable than metal components. The same goes for the rubber bars. The metal bars are durable components, but these were not all replaced even though a significant number were.
- In my judgment the replacement of the compressors and the overhauling of the compressor engines is not relevant for the reasons explained above. As for the ventilation valves, while the replacement of these was relevant, it was essentially a minor upgrade to the System.
- I also consider it significant that none of the components that were replaced were important in terms of the key inventive concept. It might be different, for example, if the blow tanks had had to be replaced.
- I also consider it significant that a fair number of components that are relevant in the sense discussed above were not replaced, but were dismantled, cleaned and re-assembled or refitted. This work was clearly repair work rather than making.
- Overall, I conclude that the works that were undertaken on the System did not amount to manufacture of a replacement System, but to repair of the existing System. The repairs were extensive, and expensive, but they remained repairs.
- Although I have reached this conclusion independently in the light of the evidence and arguments before me, I am comforted by the fact that the Oslo District Court reached the same conclusion for similar reasons.
- Exhaustion is a doctrine of EU law which was devised by what is now the Court of Justice of the European Union to resolve the conflict between what are now Articles 34 and 36 of the Treaty of the Functioning of the EU (“TFEU”). It states that, where an intellectual property right holder has exercised its exclusive right by putting a product on the market that is subject to that right, it cannot exercise that right further to prevent free movement of the product within the EU. It is necessary for this purpose to identify the specific subject matter of the intellectual property right in question in order to determine whether the right holder’s exclusive right has in fact been exercised. In the case of patents, the specific subject matter of the right was identified by the CJEU in Case C-15/74 Centrafarm BV v Sterling Drug Inc [1974] ECR 1147 at [9] as follows:
- By virtue of the Agreement of the European Economic Area, the patentee’s rights are exhausted if the product is put into circulation anywhere within the EEA, which includes Norway.
- It is common ground that guidance as to when a product has been put into circulation for this purpose was given by the CJEU in the trade mark context in Case C-16/03 Peak Holding AB v Axolin-Elinor AB [2004] ECR I-11313:
- Peak Holding is also authority for the proposition that it is not possible to contract out of the exhaustion rule:
- As set out above, through the insurance settlement, the Defendants obtained a compensation payment of $17.25 million for the Vessel. The Claimants contend that the Defendants thereby realised the economic value of the System. Furthermore, the settlement gave Codan, through the operation of section 5-19 of the Plan, the right to call for ownership of the vessel upon payment of this compensation. Although this right was ultimately waived by Codan, the Claimants contend that the effect of the transaction was to afford Codan (an independent third party) with a right of disposal of the Vessel.
- I did not understand counsel for the Claimants to argue that the receipt by the Defendants of the compensation payment was sufficient in itself to exhaust the Defendants’ rights under the Patent. In my view he was clearly right not to do so. The Defendants did not realise the economic value of the Vessel in the sense in which that expression is used in the case law of the CJEU. Rather, they received compensation for the substantial destruction of the Vessel. The receipt of such an insurance payment cannot be said to have put the Vessel into circulation.
- Accordingly, the key question is whether, as the Claimants contend, the right to dispose of the Vessel was transferred to Codan.
- It is common ground between the Norwegian law experts that at no point did the ownership of the Vessel pass from KGJSC to Codan (or Gard).
- There is a limited difference of opinion between the experts as to the operation of the Plan in the period between 19 and 23 January 2009. The dispute appears to be as to whether, after KGJSC declared a constructive total loss on 15 January 2009, the acceptance by Codan on 19 January 2009 was provisional (as Prof Wilhelmsen considers) or final (as Mr Stang Lund considers). Prof Wilhelmsen considers that Codan only irrevocably accepted the declaration of total loss on 23 January 2009, and at the same time it waived its right to call for the ownership of the Vessel. Mr Stang Lund considers that Codan accepted the declaration of total loss on 19 January 2009, but only waived its right to call for the ownership of the Vessel on 23 January 2009.
- The point appears to be that, if Prof Wilhelmsen’s view is correct, KGJSC could have withdrawn the declaration of total loss at any stage until 23 January 2009, and there was never a time when Codan could insist on the transfer of ownership of the Vessel and had not waived that right. By contrast, on Mr Stang Lund’s evidence, there was a period between 19 and 23 January 2009 when KGJSC could not withdraw its declaration of total loss and Codan was entitled to call for the Vessel on payment of the insured sum.
- Both counsel submitted, albeit for slightly different reasons, that the difference of opinion between the experts on this point did not matter. If it does matter, however, I prefer Prof Wilhelmsen’s analysis. Although Codan’s letter dated 19 January 2009 confirmed that the Vessel was a total loss, it made it plain that Codan had not yet decided whether to pay out under the H&M policy. It also made it plain that, if Codan agreed to pay, it would waive its right to the Vessel under section 5-19 of the Plan.
- The Claimants contend that, either way, the Defendants transferred the right of disposal of the System to Codan. I do not accept this. Even on Mr Stang Lund’s analysis, all that Codan had from 19 to 23 Jajnuary 2009 was the right to take ownership of the Vessel if it so wished. There was no transfer of the right of disposal. As Mr Stang Lund acknowledges in paragraph 63 of his first report, under section 5-19 transfer of ownership would only be effective on payment of the $17.25 million. But Codan waived its right prior to making the payment. As a result, Gard became entitled to, and ultimately received, the realisable value of the Vessel.
- I am conscious that the Oslo District Court reached a different conclusion in its judgment, and I part company with that Court with some diffidence given that the question partly depends on Norwegian law. I have been informed, however, that the Oslo District Court reached its decision on this point without hearing any submissions or evidence from the parties. Having had the benefit of the evidence and submissions discussed above, I am unable to agree with the Oslo District Court’s conclusion that KGJSC ceded the Vessel to the insurance company.
- There is no dispute that, by the MoA, KGJSC sold the Vessel to Cemet. Prima facie, therefore, it realised the (remaining) economic value of the Vessel and put it into circulation. The Defendants contend, however, that clause 18 prevented the MoA from having that effect. This depends on the interpretation of clause 18.
- It is convenient to divide clause 18 into three numbered sentences for the purpose of analysis:
- Sentence (1) prevents Cemet itself from using or re-commissioning the Vessel as a pneumatic cement carrier.
- Sentence (2) gives KGJSC a right of first refusal if Cemet sells the Vessel before conversion to a bulk carrier. This clearly contemplates that Cemet may sell the Vessel with the System in its current state. Further, by saying KGJSC has the right of first refusal, sentence (2) necessarily contemplates not only an opportunity for KGJSC to buy the Vessel back in its current state, but also that, if KGJSC declines to re-purchase having been given first refusal, then the Vessel can be sold without conversion.
- It follows that, if Cemet breaches the obligation to give KGJSC first refusal and sells the Vessel to a third party, KGJSC will have a claim against Cemet, but no more. The third party will get full title to the Vessel, without restriction.
- Sentence (3) gives KGJSC the right to verify de-commissioning as a pneumatic cement carrier. Thus, if Cemet does not sell the Vessel to a third party, KGJSC can check that Cemet is complying with sentence (1).
- Consistently with the foregoing analysis, the Defendants admit that clause 18 does not contain any restriction on successors in title to Cemet preventing them from using the System.
- The Defendants nevertheless contend that they did not put the System into circulation so as to exhaust their rights under the Patent, because clause 18 prohibited Cemet from using or re-commissioning the Vessel as a pneumatic cement carrier. In support of this contention, counsel for the Defendants relied upon the decision of the CJEU in Case C-127/09 Coty Prestige Lancaster Group GmbH v Simex Trading AG [2010] ECR I-4965.
- In Coty Coty supplied perfume testers marked “Demonstration” and “Not for Sale” to its authorised dealers in Singapore and the Middle East on terms that Coty retained ownership of the testers. Simex imported the testers into Germany and sold them to a retailer there. Simex contended that Coty’s rights as the trade mark owner had been exhausted because the testers had been put on the market in the EEA with Coty’s consent.
- The CJEU held at [34]-[36] that, since the goods had first been put on the market in the EEA by Simex, Coty’s rights as trade mark owner could only be exhausted if it had consented, expressly or impliedly, to the goods being put on the market in the EEA. The Court went on to hold at [41]-[43] that the fact that the testers were marked “Demonstration” and “Not for Sale” clearly reflected an intention that the goods should not be sold at all, whether inside or outside the EEA, and in the absence of evidence to the contrary showed that there was no implied consent by Coty. The Court added at [44]-[45] that, even if the testers had been supplied by Coty to authorised dealers in the EEA, the position would be the same.
- In my judgment Coty does not support the Defendants’ case. The key point in Coty was that it was clear that the trade mark owner had not consented to the testers being sold at all. In the present case KGJSC sold the Vessel, and hence the System, to Cemet. Although clause 18 of the MoA prevented Cemet from using or re-commissioning the Vessel as a pneumatic cement carrier, it did not prevent Cemet from selling the Vessel to a third party for use as a pneumatic cement carrier, still less did it prevent any such third party from using the Vessel in that way. In those circumstances I consider that the Defendants either put the Vessel, and hence the System, into circulation in the EEA, with the contractual restriction being ineffective to prevent exhaustion, or consented to Cemet doing so. The Defendants therefore exhausted their rights under the Patent in respect of the System.
- In the alternative to their case on exhaustion, the Claimants contend that their use of the System has impliedly been licensed by the Defendants. I shall assume for this purpose that, contrary to the conclusion reached above, the Defendants have not exhausted their rights under the Patent.
- Both counsel accepted as accurate my account of the law in HTC Corporation v Nokia Corporation [2013] EWHC 3247 (Pat), [2014] RPC 19:
- Counsel for the Defendants submitted that the doctrine of implied licence had no application in relation to acts taking place within the EEA, in relation to which the relevant doctrine was that of exhaustion of rights. If there was no exhaustion, there could be no implied licence. Although he did not put it in this way, this amounts to a submission that domestic law (the doctrine of implied licence deriving from Betts v Willmott) is pre-empted by EU law (the doctrine of exhaustion developed by the CJEU).
- Counsel for the Claimants disputed this. He submitted that the declarations claimed related to a European Patent (UK) and that the applicable law was therefore domestic law. Although the primacy of EU law required domestic courts to recognise and apply the doctrine of exhaustion, it did not follow that it ousted the possibility of an implied licence in circumstances which did not amount to exhaustion.
- In my judgment the resolution of this dispute depends on the nature of the acts relied upon. I would not exclude the possibility that the doctrine of implied licence may apply in circumstances not covered by the doctrine of exhaustion. In the present case, however, the Claimants rely upon the sale of the Vessel successively to Cemet, Esmenet and PPS as conveying an implied licence to use the System because clause 18 did not apply to purchasers subsequent to Cemet and in any event was not “brought home” to the Claimants. This is essentially the same basis as the basis of the Claimants’ exhaustion argument. In those circumstances I consider that EU law must pre-empt domestic law, and that only the doctrine of exhaustion applies. Otherwise, different rules would apply in different Member States, which would potentially distort the internal market of the EU.
- A further point is that the Claimants contend that the implied licence extended beyond repairing the System to re-making it. I do not accept that this is legally possible. As Lord Hoffmann stated in United Wire at [70]:
- In case I am wrong in my analysis of the law, I must determine whether or not clause 18 was “brought home” to the Claimants. I have found as a fact that Mr Nytun did not inform Mr Grøtterud of the relevant part of clause 18 (sentence (1)). The Defendants contend that, even so, it was sufficient that Mr Nytun knew the terms of clause 18, since his knowledge is to be attributed to PPS. The Claimants dispute this, and in any event contend that what is required is for the patentee (here the Defendants) to give notice of the relevant restriction to the relevant purchaser (here PPS).
- In my judgment all that is required is that the purchaser has knowledge of the relevant restriction at the time of purchasing the goods. There is no requirement for formal notice to be given by the patentee. The question, therefore, is whether Mr Nytun’s knowledge is to be attributed to PPS. The Defendants rely upon the fact that, although Mr Nytun was not apparently either a director, officer or employee of PPS, but merely a consultant, it was Mr Nytun who signed the Memorandum of Agreement under which PPS acquired the Vessel on behalf of PPS. In those circumstances I conclude that his knowledge of clause 18 of the MoA is to be attributed to PPS in connection with its acquisition of the Vessel.
- In the further alternative to their cases on exhaustion and implied licence, the Claimants contend that the Defendants are estopped from objecting to their use of the System. The Claimants’ case is one of estoppel by representation.
- Sean Wilken and Karim Ghaly, The Law of Waiver, Variation, and Estoppel (3rd ed, OUP, 2012) summarise the elements of estoppel by representation at paragraph 9.01 as follows:
- The authors say that representations of present intention can give rise to estoppel by representation, but that representations of future intention in simple terms will not at least usually give rise to such an estoppel: see paragraph 9.26.
- The Claimants contend that the Defendants represented to the world, including the Claimants, that they would not object to use of the System on the Vessel. I can deal with this contention briefly. All the matters relied upon by the Claimants in support of it amount, upon analysis, to failures by the Defendants to act or to complain. In particular, the Claimants rely (among other things) upon the Defendants’ failure to repurchase the Vessel from Esmenet and their failure to prevent the public offers for sale of the Vessel. But the Defendants did not thereby represent that they would not enforce the Patent against the Claimants. It follows that the Claimants’ case is unsustainable. It is unnecessary to discuss the other flaws in it.
- For the reasons given above, I conclude that:
MR JUSTICE ARNOLD :
| Topic | Paras |
| Introduction | 1-4 |
| The witnesses | 5-22 |
| Factual evidence | 5-15 |
| Technical experts | 16-17 |
| Experts on Norwegian maritime insurance law | 20-22 |
| Technical background | 23-29 |
| Common features | 24-26 |
| Vertical system | 27 |
| Vacuum system | 28 |
| Screw pump system | 29 |
| The Patent | 30-45 |
| The invention | 46 |
| The claims | 47-49 |
| Construction of claim 1 | 50-51 |
| Mr Humlestøl’s list of components | 52-58 |
| The facts concerning the Vessel | 59-127 |
| Purchase and conversion of the Vessel by the Defendants | 59-60 |
| The grounding | 61-63 |
| The insurance settlement | 64-75 |
| Purchase of the Vessel by Cemet | 76-84 |
| The condition of the Vessel and the System at the date of the MoA | 85-92 |
| Work carried out by Cemet on the Vessel and the System | 93-94 |
| Purchase of the Vessel by Esmenet | 95-98 |
| Work carried out by Esmenet on the Vessel and the System | 99-110 |
| The Defendants decide not to purchase the Vessel | 111-116 |
| Purchase of the Vessel by the Claimants | 117-126 |
| Work carried out on the System by the Claimants | 127 |
| The correct approach to the issues of exhaustion and manufacture or repair | 128-132 |
| Manufacture or repair? | 133-172 |
| The law | 133-148 |
| Assessment | 149-172 |
| Purchaser expectations | 154 |
| Life expectancy of components | 155-158 |
| Subsidiary or substantial components | 159 |
| Independent identity | 160 |
| The inventive concept | 161 |
| Other factors | 162-166 |
| Overall assessment | 167-173 |
| Exhaustion | 174-197 |
| The law | 174-177 |
| Assessment: the insurance settlement | 178-186 |
| Assessment: the MoA | 186-196 |
| Implied licence | 198-205 |
| The law | 199-203 |
| Assessment | 204-205 |
| Estoppel | 206-209 |
| The law | 207-208 |
| Assessment | 209 |
| Summary of principal conclusions | 210 |
Introduction
The witnesses
Factual evidence
Technical experts
Experts on Norwegian maritime insurance law
Technical background
Common features
Vertical screw system
Vacuum system
Screw pump system
The Patent
“a system and method for unloading a powdery cargo from a ship, the system comprising a ship, wherein the ship comprises one or more cargo holds in which the bottom tapers down towards a central point in the cargo hold, and also a fluidisation arrangement for fluidisation of the powdery cargo in the cargo hold so that the cargo flows towards said central point in the cargo hold, the system further comprising a pneumatic unloading pump being arranged in or adjacent the central point in the cargo hold at least partially below the bottom of the cargo hold, and that the pump is arranged to directly receive the fluidised powdery cargo.”
“Common to all pneumatic unloading systems that are installed on board a vessel is that the unloading process itself is carried out in three operations on board before the cargo is delivered through the pipeline to an installation ashore”.
i) Step 1 centralisation of cement: the cement in the cargo holds must be brought to a central point at the bottom of the cargo hold (or at an equivalent point outside of the cargo hold). A property of cement is that when mixed with air it behaves like a liquid. It is common, therefore, for the cargo hold bottoms to have an incline and be fitted with fluidisation panels, through which air can be blown to fluidise the cement so that it flows to the lowest point.
ii) Step 2 transport to pumps: the cement has to be transported from the lowest point of the cargo hold (or equivalent point outside the cargo hold) to the unloading pumps. This may be done either by use of a vacuum system, which sucks the cement up to a filter tank and then drops it down into an unloading pump, or by use of a mechanical system (e.g. a screw conveyor) to lift the cement into a hopper tank before dumping it into an unloading pump.
iii) Step 3 blowing ashore: once the unloading pump is filled with cement, the inlet is closed and compressed air added. Once pressurised, the outlet is opened and the cement blown ashore.
“ to promote a pressure tank pump with side filling and which can be placed centrally in the bottom on a ship carrying cement. The present pump can, as a result of this, be directly filled from the cargo hold without the use of energy.”
Further advantages and objects are described at [0022]-[0023].
“ is primarily that step two has been removed. This is achieved by placing a newly developed unloading tank centrally under or in the cargo hold bottom. When the cement in the cargo hold is fluidised, the cement flows into the pump which is therefore filled due to gravitational forces. The patent-applied unloading appliance described here has consequently only two sequences in the unloading chain which use energy, i.e. fluidisation of the cement in the cargo holds and transportation of the cement via unloading lines to the receiving installation. All other pneumatic, pressurised unloading appliances have at least one sequence more in the unloading chain that uses energy.”
“Powdery cargo that has become fixed in the pump can be air-flushed or broken up with the help of air from a number of nozzles fitted internally in the pump, as the nozzles are supplied air via an inlet in the pump.”
[Diagram or picture not reproduced in HTML version – see original .rtf file to view diagram or picture]/
“Steering systems for control of supply/discharge of cargo in the pump, supply/venting of air in the pump and supply of air to the fluidisation arrangements will, in the main, be comprised of known systems and will not be explained in more detail in that these are regarded as known by one skilled in the arts.”
The invention
The claims
“[1] System for unloading of a powdery cargo from a ship,
[2] the system comprising a ship,
[3] the ship comprising one or more cargo holds with a cargo hold bottom which tapers towards a central point in the cargo hold,
[4] and also a fluidisation arrangement for fluidising the powdery cargo in the cargo hold such that the cargo flows towards said central point in the cargo hold,
[5] the system further comprising a pneumatic unloading pump being arranged in or adjacent the central point in the cargo hold at least partially under the bottom of the cargo hold
[6] and that the unloading pump is set up to directly receive the fluidised powdery cargo,
characterised in that
[7] the unloading pump is a pressure tank pump,
[8] where the side wall of the pump comprises at least one inlet for the powdery cargo, with the inlet at height corresponding with the cargo bottom,
[9] wherein the powdery cargo, with the help of the gravitational forces, flows into the pump and fills the pump completely or to a level corresponding to that of the cargo hold,
[10] and that the pump after filling is arranged to be pressurised to blow said cargo ashore.”
i) Claim 2 the unloading pump of claim 1 has a pump housing.
ii) Claim 3 the fluidisation arrangement of claim 1 is “at least partially formed” in that the bottom of the hold comprises a number of valves/panels for supply of air for fluidisation in the cargo hold.
iii) Claim 4 the inlet of the unloading pump of claim 2 comprises a closing valve.
iv) Claim 5 the unloading pump of any preceding claim has at least one unloading outlet for transport of cargo ashore via a pipeline and at least one compressed air inlet to pressurise the pump and to supply compressed air during unloading, where the inlet ends internally in the unloading outlet.
v) Claim 6 the unloading pump of claim 5 has at least one air opening for venting air during filling of the pump with powdery cargo. It appears that the opening and venting must be temporary, during filling.
vi) Claim 7 the unloading pump of claim 5 or 6 has at least one inlet for supply of fluidisation air to internal fluidisation panels in a lower part of the pump (i.e. the pump has a fluidisation arrangement).
vii) Claim 8 the unloading pump of claim 5, 6 or 7 has at least one inlet for supply of air to nozzles arranged internally on the side wall of the pump, set up to air-flush the powdery cargo that may have become stuck in the pump (i.e. the air-flushing nozzles).
Construction of claim 1
Mr Humlestøl’s list of components
i) Components in the pre-characterising portion of claim 1:
a) Cargo holds (A).
b) Cargo hold bottom which tapers towards a central point in the cargo hold (B).
c) Fluidisation arrangement for fluidising the powdery cargo in the cargo hold such that the cargo flows towards said central point in the cargo hold (see (g) below).
d) A pneumatic unloading pump which is a pressure tank pump (also referred to as a blow tank) arranged in or adjacent the central point in the cargo hold at least partially under the bottom of the cargo hold and set up to directly receive the fluidised powdery cargo (H).
ii) Components in the characterising portion of claim 1:
e) The side wall of the pump has at least one inlet for the powdery cargo, with the inlet at height corresponding with the cargo hold bottom (part of J).
iii) Components in the characterising portions of the other claims:
f) Pump housing (I).
g) Fluidisation arrangement is at least partially at the bottom of the hold and has a number of valves (65 Ghibson valves) (C) and panels (E) for supply of air for fluidisation.
h) The inlet of the unloading pump has a closing valve (Warman H valve) (part of J).
i) The unloading pump has at least one unloading outlet for transport of cargo ashore via a pipeline (part of S) and at least one compressed air inlet (T) to pressurise the pump, where the inlet ends internally in the unloading outlet.
j) The unloading pump has at least one air opening for venting air during filling (Warman V valves, which were replaced with Larox valves by the Claimants, as explained below) (K).
k) The unloading pump has at least one inlet (part of L) for supply of fluidisation air to internal fluidisation panels (M) in a lower part of the pump.
l) The unloading pump has at least one inlet for supply of air to nozzles (“umbrella nozzles”) (part of P) arranged internally on the side wall of the pump or centrally, set up to air-flush the powdery cargo that may have become stuck in the pump.
iv) Other components not mentioned in the claims:
m) Actuators (part of C, J, K, L, S).
n) Air pipes for fluidisation of the cargo hold (D)).
o) Nuts, bolts and fixation bars for fluidisation panels in cargo holds (F).
p) Air blowers for supplying fluidisation air (G)).
q) Nuts, bolts and fixation bars for fluidisation panels in the blow tanks (N).
r) Air pipes to the blow tanks (O).
s) Compressors (Q).
t) Compressor engines (Volvo Penta engines) (R).
u) Electrical system (including auxiliary engines, solenoid valves, cables, cargo control panel) (U).
The facts concerning the Vessel
Purchase and conversion of the Vessel by the Defendants
The grounding
The insurance settlement
i) A Hull & Machinery (“H&M”) insurance policy, for which the lead insurer was Codan Forsikring A/S (“Codan”). This policy also included Hull Interest insurance and Freight Interest insurance. H&M insurance covers the assured for damage to the vessel and equipment on board, Hull Interest insurance is additional insurance in respect of the hull against total loss only and Freight Interest insurance is an additional insurance in respect of freight, also against total loss only. This can result in insurance for the vessel against total loss of up to 150% of the market value of the vessel.
ii) A Protection & Indemnity (“P&I”) insurance policy with Assuranceforeningen Gard (“Gard”). Generally speaking, P&I insurance covers third party liability and also oil pollution and wreck removal.
“1. Upon payment of compensation for damage or total loss, the insurer is subrogated to the assured’s rights in the object insured or such parts of the object insured as he has indemnified, unless he, no later than the time of payment, waives this right. §2-4 shall apply correspondingly.
2. In the event of a total loss, the assured shall furnish the insurer with title to the object insured and hand over all documents that are material to him as owner. Costs incurred in this connection shall be borne by the insurer.”
“1. The assured may claim compensation for a total loss if the conditions for condemnation of the ship are met.
2. The conditions for condemnation are met when casualty damage is so extensive that the cost of repairing the ship will amount to at least 80% of the insurable value, or of the value of the ship after repairs if the latter is higher than the insurable value. If two or more insurances have been effected against the same perils but with different valuations, the highest valuation shall form the basis of the calculation.”
“We confirm that the [Vessel] is a total loss as per NMIP § 11-3 and that compensation will be paid according to the regulations of the Plan if and when it is established that the average is recoverable which we need some time to decide. We are still waiting for some documentation of relevance in this regard.
If the average is deemed as recoverable all rights to the vessel which follows from section 5-19 of the Plan will be waived. This implies that you in relation to the H & M Insurers are free to dispose of the vessel.
We notice that payment also is requested under the Hull- and Freight Interest Insurances. We will revert to this when the coverage has been finally decided.”
“The Owners have declared the vessel a total loss as per NMIP §11-3 and requested payment of the sum insured.
Leading Underwriters have accepted the the [sic] declaration of total loss and renounced the rights under §5-19 to take over the vessel.”
Purchase of the Vessel by Cemet
“The Owners and P&I Insurers Gard of [the Vessel] is considering to offer the vessel for sale in damaged condition on an ‘as is, where is’ basis.
There is a cement discharging system onboard consisting of three blow tanks fitted in a longitudinal tunnel in the bottom centre of the vessel .
There has been water ingress at the bottom of all cargo holds, and there is hardened cement on all tank tops. There has been water on top of cargo holds no. 2S, no. 3P&S and all three blow tanks have been flooded. It is likely that cement lumps and hardened cement will remain on board.”
“The Buyers undertake not to use or re-commission the Vessel as a pneumatic cement carrier. If the Vessel is re-sold before conversion to bulk carrier, Sellers to have 1st right of refusal. Sellers have the right to verify by inspection that the Vessel is de-commissioned as a pneumatic cement carrier and that the three cement pumps/pressure vessels are destroyed.”
The condition of the Vessel and the System at the date of the MoA
Work carried out by Cemet on the Vessel and the System
i) Cemet had done work on the electrical system, steel works on the hull and cleaning/removal of cement in the tanks, but there was still some hardened cement left.
ii) The fluidisation canvas needed to be more or less entirely replaced.
Purchase of the Vessel by Esmenet
i) On 30 December 2009 John Solberg of the Defendants emailed Mr Steimler drawing attention to clause 18 of the MoA.
ii) On 18 January 2010 Mr Steimler forwarded to Mr Solberg an email from Mr Dehni informing him, among other things, that the Defendants were welcome to visit the Vessel and that the intention was to convert it to a bulk carrier which would take three months.
iii) By email dated 21 January 2010 Mr Solberg informed Mr Steimler that the Defendants were not interested in purchasing the Vessel, but wished to be informed when the repairs had been completed or when the Vessel was put on the market so that they could exercise their option to verify destruction of the cement handling system.
Work carried out by Esmenet on the Vessel and the System
i) Some of the cargo holds had been completely sandblasted and painted (with all cement removed from those Mr Jakobsen saw) and new fluidisation canvas was about to be installed.
ii) The blow tanks had been cleared of cement, although there was still some water/cement in the bottoms. The inlet/outlets from the tanks had been cleaned.
iii) The compressor motors had been run. The auxiliary motors also looked good, but the main motor looked a bit shabby.
iv) The cabling had not been replaced.
i) “The machinery and components in the cargo handling MCC/PLC as well as the solenoid valve boxes had already been replaced or repaired”; and
ii) “in general most of the valves below deck (pump rooms, holds and pipe tunnels) had also been replaced or repaired”.
i) Pumps (i.e. blow tanks) numbers 1 and 3 worked satisfactorily, although to get pump number 3 going five new solenoid valves had to be installed.
ii) There were several leakage points, where gaskets or a sufficient quantity of bolts were lacking. As a result, the tunnel was filled with cement dust from the fluidisation of the cargo holds.
iii) There were problems with continuity in the electrical/signal system due to the cable and connecting terminals having been exposed to seawater. This condition had worsened since April 2010, and Carmatec assumed that in the end all the cables would have to be replaced.
iv) During the testing of the machinery prior to unloading, problems with all the compressors were discovered, due to them having been serviced and incorrectly assembled during overhaul in Turkey. They ran well at first, but were damaged during testing and found to be beyond repair during later inspection. Therefore alternative rental compressors were used, but due to their smaller size the cement came out at a low rate.
v) After a few hours of operation, a temporary discharge hose being used failed and therefore the operation had to be stopped. Carmatec understood that the Vessel eventually had to leave the port with cargo still onboard.
The Defendants decide not to purchase the Vessel
i) Cargo holds:
a) 170 tonnes of cargo was left on board (loose cement left over from the abortive discharge by Esmenet).
b) The uneven level of the cargo indicated problems with some fluidisation panels.
c) All the fluidisation canvas had been changed.
ii) Blow tanks:
a) New canvas had been installed.
b) All pipes had been cleaned, but it was not possible to verify the quality of this work.
c) Valves on the blow tanks were in operational condition, but the signalling was not working on all the valves.
iii) Void spaces: no work had been done in this area and the fluidisation valves didn’t have any signs indicating they had been overhauled.
iv) Cargo control room:
a) A new computer had been supplied by Carmatec.
b) A selection of valves was operated using a touch screen, but some were not responding. Signalling was a problem with several valves.
c) Manual panels had been cleaned inside, but were not 100% operational.
v) Cargo machinery room:
a) All three compressors had been disassembled due to breakdown.
b) All three Volvo Penta engines tested ok.
c) All panels for control and starting had been changed.
d) All three blowers were tested and running ok, although one was not building up enough pressure due to the relief valve not closing after start.
Purchase of the Vessel by the Claimants
i) It was a good ship and he had recommended that the Defendants re-purchase it.
ii) The Defendants had sold the Vessel to Cemet with some sort of right of first refusal to buy it back, but that the Defendants had inspected the Vessel twice between 2010 and 2011 and decided not to repurchase it and had not objected to the marketing of the Vessel for use as a pneumatic cement carrier.
iii) The Defendants had applied for a patent in relation to the System, but took the view that it would be difficult to obtain, and it had not yet been granted.
Work carried out on the System by the Claimants
i) Cargo holds (A) and hold bottoms (B): These were structurally sound. As noted above, the loose cement leftover from when Esmenet transported cargo was removed.
ii) Fluidisation valves for the cargo holds (C): Mr Sienkiewicz’s evidence, which is supported by the relevant entry in the invoice from the shipyard, was that the 65 Ghibson valves were cleaned and re-fitted. The Defendants contend that it is more likely that the valves were replaced, relying upon evidence that the cost would have been about the same. Mr Sienkiewicz very fairly accepted that that was a theoretical possibility, but in my judgment the invoice is the best evidence as to what was actually done.
iii) Air pipes for fluidisation of the cargo hold (D): These were taken apart, cleaned and put back together again. In addition, the alignment of the air fluidisation channels in the cargo holds was changed to avoid damage to the fluidisation panels.
iv) Fluidisation panels in the cargo holds (E) and blow tanks (M): All 144 panels in the holds and 27 panels in the tanks were replaced (again).
v) Fixation bars for fluidisation panels in the cargo holds (F) and the blow tanks (N): All the rubber bars below the canvas in the tanks were replaced and a significant number in the holds. The majority of the steel bars above the canvas in the tanks were replaced and a significant number in the holds, the remainder being cleaned and refitted. About 600 out of the 24,000-odd nuts and bolts were replaced.
vi) Air blowers (G): These were overhauled, i.e. opened and inspected, bearings and filters renewed where necessary, components greased and then closed.
vii) Blow tanks (H): A thin layer of hardened cement was removed and a small hole at the top of blow tank 2 was sealed.
viii) Cargo inlets to the blow tank (J): The Warman 400 valves were cleaned, new rubber liners were installed and the valves refitted.
ix) Ventilation line and valve for the blow tank (K): The three Warman 200 ventilation valves (one for each tank) were replaced with Larox valves.
x) Fluidisation air inlet for blow tanks (L): The valves and actuators were replaced and some of the pipes.
xi) Air pipes to the blow tank (O): These were dismantled, cleaned and put back together again.
xii) Inlet for supply of air to nozzle in each blow tank (P): Nozzles were fitted (having apparently been removed by Cemet or Esmenet).
xiii) Compressors (Q): All three compressors were replaced, as they had not been properly maintained.
xiv) Compressor engines (R): The Volvo Penta engines were overhauled, with any part showing wear being replaced. Replaced parts included the silencers and pneumatic starters. Mr Sienkiewicz agreed that quite a substantial proportion of each engine was replaced.
xv) Unloading outlet and discharge pipe (S): These were dismantled, cleaned and refitted. Some welding supports were replaced with flanges.
xvi) Compressed air inlet (booster air) (T): These were taken apart, hardened cement removed and refitted.
xvii) Electrical arrangements (U): An IT company called CITASys replaced the PLC and installed new software. Mr Sienkiewicz explained that one of the reasons for the new software was that the Claimants installed a new touchscreen panel to operate the System. Some of the wiring was replaced, but Mr Sienkiewicz was not able to say how much. The auxiliary engines were overhauled.
The correct approach to the issues of exhaustion and manufacture or repair
Manufacture or repair?
The law
“ in this case the Court of Appeal was in my opinion entitled to substitute its own evaluation because I think, with great respect to the judge, that he did not correctly identify the patented product. He said that the frame was an important part of the assembly and that the defendants had prolonged ‘the screen’s useful life’. It is quite true that the defendants prolonged the useful life of the frame. It would otherwise presumably have been scrapped. But the screen was the combination of frame and meshes pre-tensioned by attachment with adhesive according to the invention. That product ceased to exist when the meshes were removed and the frame stripped down to the bare metal. What remained at that stage was merely an important component, a skeleton or chassis, from which a new screen could be made.”
“26. First, the word ‘makes’ must be given a meaning which, as a matter of ordinary language, it can reasonably bear. Secondly, it is not a term of art: like many English words, it does not have a precise meaning. Thirdly, it will inevitably be a matter of fact and degree in many cases whether an activity involves ‘making’ an article, or whether it falls short of that.
27. Fourthly, the word ‘makes’ must be interpreted in a practical way, by reference to the facts of the particular case. Fifthly, however, there is a need for clarity and certainty for patentees and others, and for those advising them. Sixthly, it should be borne in mind that the word applies to patents for all sorts of products, from machinery to chemical compounds. Seventhly, one should bear in mind, at least as part of the background, the need to protect the patentee’s monopoly while not stifling reasonable competition.
28. Eighthly, the word ‘makes’ must be interpreted bearing in mind that the precise scope of a claim may be a matter almost of happenstance in the context of the question whether the alleged infringer ‘makes’ the claimed product. Lord Diplock described the specification of a patent as ‘a unilateral statement by the patentee, in words of his own choosing’ by which he states ‘what he claims to be the essential features of the new product’ Catnic Components Ltd v Hill & Smith Ltd [1982] RPC 183, 242. As Lord Hoffmann explained in Kirin-Amgen Inc v Hoechst Marion Roussel Ltd [2004] UKHL 46, [2005] 1 All ER 667, [2005] RPC 169, para 21, a claim is, or at least should be drafted ‘not only in the interest of others who need to know the area “within which they will be trespassers” but also in the interests of the patentee, who needs to be able to make it clear that he lays no claim to prior art or insufficiently enabled products’. As Lord Hoffmann went on to explain in para 35, all sorts of factors, only some of which may appear to be rational, can influence the person drafting a claim.
29. Ninthly, where, as here, there is a decision (United Wire) of the House of Lords or this court on the meaning of the word, it cannot be departed from save for very good reasons indeed. Finally, particularly given that section 60 (like section 125) is one of the sections mentioned in section 130(7) of the 1977 Act, the word should be interpreted bearing in mind that it is included in a provision which is intended to be part of a scheme which applies in many other jurisdictions.”
“50. The mere fact that an activity involves replacing a constituent part of an article does not mean that the activity involves ‘making’ of a new article rather than constituting a repair of the original article. Repair of an item frequently involves replacement of one or some of its constituents. If there are broken tiles on a roof, the replacement of those tiles is properly described as repairing the roof, and such replacements could not be said to involve rebuilding, or ‘making’, the roof. Indeed, replacing the whole of a deteriorated roof of a building could be regarded as repairing the building, taken as a whole, rather than reconstructing the building. There are many cases concerned with repairing obligations in leases which illustrate this point
51. In the more directly relevant context of chattels rather than buildings, the normal use of ‘making’ and ‘repairing’ demonstrates the same point. Works to a ship or a motor car, which involve removal and replacement of defective significant constituent parts, could be substantial in terms of physical extent, structural significance, and financial cost, without amounting to ‘making’ a ship or motor car, as a matter of ordinary language: in such a case, they would be ‘repair’ of the existing ship or motor car. ”
“Deciding whether a particular activity involves ‘making’ the patented article involves, as Lord Bingham said, an exercise in judgment, or, in Lord Hoffmann’s words, it is a matter of fact and degree. In some such cases, one can say that the answer is clear; in other cases, one can identify a single clinching factor. However, in this case, it appears to me that it is a classic example of identifying the various factors which apply on the particular facts, and, after weighing them all up, concluding, as a matter of judgment, whether the alleged infringer does or does not ‘make’ the patented article. In the present case, given that (a) the bottle (i) is a freestanding, replaceable component of the patented article, (ii) has no connection with the claimed inventive concept, (iii) has a much shorter life expectancy than the other, inventive, component, (iv) cannot be described as the main component of the article, and (b) apart from replacing it, Delta does no additional work to the article beyond routine repairs, I am of the view that, in carrying out this work, Delta does not ‘make’ the patented article.”
Assessment
i) The fluidisation panels in the cargo holds and blow tanks (E and M). Being made of canvas, the fluidisation panels are vulnerable to wear and tear, and therefore it is to be expected that individual panels will need repair or replacement from time to time. The maintenance records from the Cyprus Cement show that in 2008 alone panels were repaired or replaced on 12 occasions. Nevertheless, one would not expect to have to replace all of the fluidisation panels in one go as a result of ordinary wear and tear.
ii) The fixation bars for the fluidisation panels (F and N). Again, one would expect to have to replace some of these from time to time, but not all of the rubber bars and significant numbers of metal bars at one time.
iii) The ventilation valves (K). As noted above, the Claimants replaced the Warman 200 valves with Larox valves. While replacement of these valves would not be expected, Mr Humlestøl gave evidence that the Defendants had made the same change on the Cyprus Cement because the Larox valves were better (but not superior in any way that is relevant to the invention).
iv) The compressors (Q). These would be expected to require regular maintenance, but not replacement.
v) The control system (part of U).
“We purchased the vessel, towed her to Tuzla and spent 3-4 months upgrading her from top to bottom.
The cargo system has been completely overhauled and renewed. 3 new Arzen compressors and new canvas in all cargo holds.
The vessel is a good and strong Ice class 1A ship and with the upgrading she is in fact a new ship.”
Exhaustion
The law
“In relation to patents, the specific subject matter of the industrial property is the guarantee that the patentee, to reward the creative effort of the inventor, has the exclusive right to use an invention with a view to manufacturing industrial products and putting them into circulation for the first time, either directly or by the grant of licences to third parties, as well as the right to oppose infringements.”
The CJEU’s judgment in Case 187/80 Merck & Co Inv v Stephar BV [1981] ECR 2063 at [9] is to the same effect.
“39. In the present case, it is not disputed that, where he sells goods bearing his trade mark to a third party in the EEA, the proprietor puts those goods on the market within the meaning of Article 7(1) of the Directive.
40. A sale which allows the proprietor to realise the economic value of his trade mark exhausts the exclusive rights conferred by the Directive, more particularly the right to prohibit the acquiring third party from reselling the goods.
41. On the other hand, where the proprietor imports his goods with a view to selling them in the EEA or offers them for sale in the EEA, he does not put them on the market within the meaning of Article 7(1) of the Directive.
42. Such acts do not transfer to third parties the right to dispose of the goods bearing the trade mark. They do not allow the proprietor to realise the economic value of the trade mark. Even after such acts, the proprietor retains his interest in maintaining complete control over the goods bearing his trade mark, in order in particular to ensure their quality.”
“53. Exhaustion occurs solely by virtue of the putting on the market in the EEA by the proprietor.
54. Any stipulation, in the act of sale effecting the first putting on the market in the EEA, of territorial restrictions on the right to resell the goods concerns only the relations between the parties to that act.
55. It cannot preclude the exhaustion provided for by the Directive.”
Assessment: the insurance settlement
Assessment: the MoA
“(1) The Buyers undertake not to use or re-commission the Vessel as a pneumatic cement carrier.
(2) If the Vessel is re-sold before conversion to bulk carrier, Sellers to have 1st right of refusal.
(3) Sellers have the right to verify by inspection that the Vessel is de-commissioned as pneumatic cement carrier and that the three cement pumps/pressure vessels are destroyed.”
Implied licence
The law
“154. Where a patentee sells a patented product, then, absent an agreement to the contrary, the purchaser has the right to dispose of the product. If the sale is abroad, the purchaser’s rights extend to importing the product into the UK and selling it here. This was established by the well-known case of Betts v Willmott …187071) LR 6 Ch App 239. In that case Betts owned both English and French patents for the same invention. He claimed that his English patent had been infringed by Willmott. It appeared that the infringing articles had been manufactured by a factory owned by Betts in France (or, at least, Betts could not prove that this was not the case). Betts argued that, if he sold a patented article in France, it was for the French market and that did not justify a person buying that article in France and importing it into England. Lord Hatherley L.C. held that in these circumstances the use of the invention in England had been authorised by Betts. As he said in a much-cited passage at 245:
‘But where a man carries on the two manufactories himself, and himself disposes of the article abroad, unless it can be shewn, not that there is some clear injunction to his agents, but that there is some clear communication to the party to whom the article is sold, I apprehend that, inasmuch as he has the right of vending the goods in France or Belgium or England, or in any other quarter of the globe, he transfers with the goods necessarily the license to use them wherever the purchaser pleases. When a man has purchased an article he expects to have the control of it, and there must be some clear and explicit agreement to the contrary to justify the vendor in saying that he has not given the purchaser his license to sell the article, or to use it wherever he pleases as against himself.’
155. As Lord Hoffmann pointed out in United Wire v Screen Repair Services [2001] RPC 24 at [68]-[69], this reasoning amounts to saying that the patentee has impliedly licensed the acts complained of, but an alternative explanation adopted by some other legal systems is that of exhaustion of rights. As Lord Hoffmann noted:
‘The difference in the two theories is that an implied licence may be excluded by express contrary agreement or made subject to conditions while the exhaustion doctrine leaves no patent rights to be enforced.’
156. As a result of this distinction, the patentee may exclude such an implied licence by expressly limiting the rights granted to the purchaser. To be effective, however, this limitation must be notified to subsequent purchasers of the goods. As Jacob J. stated in Roussel Uclaf v Hockley International [1996] RPC 441 at p.443:
‘It is the law that where the patentee supplies his product and at the time of the supply informs the person supplied (normally via the contract) that there are limitations as to what may be done with the product supplied then, provided those terms are brought home first to the person originally supplied and, second, to subsequent dealers in the product, no licence to carry out or do any act outside the terms of the licence runs with the goods. If no limited licence is imposed on them at the time of the first supply no amount of notice thereafter either to the original supplyee (if that is the appropriate word) or persons who derive title from him can turn the general licence into a limited licence.'”
“The sale of a patented article cannot confer an implied licence to make another or exhaust the right of the patentee to prevent others from being made.”
Assessment
Estoppel
The law
“First, A makes a false representation of fact to B Second, in making the representation, A intended or knew that it was likely to be acted upon. Third, B, believing the representation, acts to its detriment in reliance on the representation. Fourth, A subsequently seeks to deny the truth of the representation. Fifth, no defence to the estoppel can be raised by A”.
Assessment
Summary of principal conclusions
i) the work that was done to the System by Cemet, Esmenet and the Claimants did not amount to manufacture of a new System, but rather to repair of the existing System;
ii) the Defendants did not exhaust their rights under the Patent by entering into the insurance settlement;
iii) the Defendants did exhaust their rights under the Patent by selling the Vessel pursuant to the MoA;
iv) if the Defendants did not exhaust their rights under the Patent, they did not impliedly licence the use of the System by the Claimants; and
v) if the Defendants did not exhaust their rights under the Patent, they are not estopped from enforcing the Patent against the Claimants.
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URL: http://www.bailii.org/ew/cases/EWHC/Patents/2018/2628.html
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