Introduction
It has long been a feature of UK patent law that claims define the scope of patent protection. For over 35 years UK courts have adopted the guidance given by Lord Diplock in Catnic Components v Hill & Smith Footnote 1 and have approached the construction of claims ‘purposively’. Although there have been refinements and adjustments over this period, these have been relatively minor and the principle of purposive construction has operated as the universally applicable bedrock of patent construction.Footnote 2 The robustness of this approach has been significantly tested by the obligations arising by way of the UK's membership of the European Patent Convention (EPC). The UK is a founder member of this Convention and the Patents Act 1977 was enacted specifically to implement the obligations arising under it. The EPC's express object is to strengthen co-operation between the states of Europe in respect of the protection of inventions. It provides a means by which patent protection can be obtained in the EPC Member States by a single procedure for grant. It also establishes certain standard rules governing patents.Footnote 3 One such relates to the construction of claims in the context of resolving infringement disputes.Footnote 4 Article 69 EPC provides that the extent of protection conferred by a patent is to be determined by the claims. There is a Protocol on the interpretation of this article which is intended to guide national courts. The Protocol directs that courts should not give a strict, literal meaning to the words used in the claims but adds that Article 69 EPC does not admit claims being seen as a mere guideline to the extent of protection. Instead the Protocol directs courts to interpret Article 69 EPC in way that steers a path between these extremes: one which ‘combines a fair protection for the patent proprietor with a reasonable degree of legal certainty for third parties’.
The Protocol to Article 69 EPC has undoubtedly influenced judicial decision-making insofar as national courts, including those of the UK, have recognised that any approach to claims construction must be supported by its terms. But its directions are vagueFootnote 5 and despite its regular invocation it has admitted a range of approaches across the Community, each claiming to be consistent with the Protocol's terms.Footnote 6 As originally formulated, Article 69 EPC and its Protocol did not prompt significant substantive change in the domestic law of the UK. Amongst the UK judiciary there was little appetite to displace the purposive approach to claims construction operating under the common law before the coming into force of the 1977 Act.Footnote 7 In contrast to the profound changes effected in other Convention countries, UK judges displayed apparent indifference to the goal of unification of the laws of Convention countries.Footnote 8
A number of amendments were made to the EPC at a Diplomatic Conference in 2000, including one motivated by concerns that Article 69 EPC and its Protocol had failed to achieve harmonisation of the approach to claims construction. Of particular concern were the inconsistencies as between the Member States in the treatment of ‘equivalents’.Footnote 9 The Protocol was revised and a second article added which provides that, for the purpose of determining the extent of protection conferred by a European patent, ‘due account shall be taken of any element that is equivalent to an element specified in the claims’.Footnote 10
The UK Supreme Court responded with an approach to claims construction markedly different from any adopted since Catnic.Footnote 11 In Actavis UK Ltd v Eli Lilly & Co Footnote 12 Lord Neuberger directed that deciding infringement actions required asking two questions, each to be answered from the perspective of a person skilled in the relevant art. If the answer to either was ‘yes’, then, he said, there was an infringement.Footnote 13 First, he said, one must ask whether the alleged infringer's variant falls within the scope of any of the claims as a matter of ‘normal interpretation’. The first question, Lord Neuberger observed, involved a familiar process that was subject to the same general principles applied in the interpretation of commercial contracts.Footnote 14 If not, then the second question was whether the variant nonetheless infringed because it varied from the claimed invention in an immaterial way. This second question he said, squarely raised the principle of equivalents.Footnote 15
The adoption of methods typically applied to the interpretation of contracts to the construction of patent claims is not a new feature of UK law.Footnote 16 Nor is the recognition that immaterial variations fall within the scope of protection.Footnote 17 The central object of this paper is to highlight the particular significance of these recurring facets of UK law and in particular to show how they accord with the dominant economic theory supporting the patent system and the consequences of that accord. In this respect the argument draws on the normative implications arising out of Ronald Coase's paper on the problem of social costFootnote 18 and offers a new way of thinking about patents as bargains.
The section that follows sets out to illustrate in more detail how UK courts have approached the exercise of claims construction by adopting principles common to the interpretation of contracts and, within this framework, what then has been understood as a material variation. The object of the third section is to provide theoretical support for UK courts’ adoption of the contractual paradigm in construing patent claims. In essence, the argument advanced is that the patent system should be seen as a substitute for an explicit bargain, not as commonly asserted between the state and the patentee, but between economically active entities operating in the market under which a duty is accepted by one party in return for acceptance of a burden of risk by the other. Under this hypothetical agreement both parties seek to manage the risks associated with innovation: one by sharing the idiosyncratic costs of innovation and the other by outsourcing research capabilities. This provides an ex ante perspective of the patent bargain that readily incorporates both the static costs and the dynamic benefits of the patent system and accords with the monopoly-profit-incentive theory most commonly advanced in its support. The final section sets out to show how the contemporary approach to claims construction can be seen as giving effect to the presumed intentions of the parties to this hypothetical bargain. The argument develops by demonstrating that giving effect to presumed intention underpins both the implication of terms which go beyond those expressly agreed to by parties to a contract and the embracing of immaterial variations not expressly within the scope of patent claims. This section concludes with the observation that in both cases the operating presumptions can be rationalised as minimising the transaction costs of bargaining. An examination of these transaction costs points to an important difference between the presumed intention behind narrowly drawn and specific patent claims and similarly framed contractual terms. The analysis and economic evaluation provides theoretical support for the Supreme Court's decision in Actavis and its suggested mode of incorporating a doctrine of equivalents into UK patent law.
1. The judicial approach to claims construction
As noted above, in Actavis, Lord Neuberger directed that the interpretation of a patent claim should be subject to the same general principles applied in the interpretation of commercial contracts. This is not a novel approach. Acknowledgement of the relationship certainly extends back as far as the late nineteenth century. Thus in Nobel's Explosives Co v Anderson, Lord Esher MR, in construing a patent, expressly adopted the same canons of construction as those applied to ‘every agreement between parties’ and ‘to almost every instrument that the Court has to construe as between litigants’.Footnote 19 This understanding informed the construction of claims well into the twentieth century.Footnote 20 Lord Esher's positioning of the exercise in the context of litigation is important because it explains why courts see parallels between the exercises of claims construction and construction of other legal instruments. This ex post perspective of courts significantly shapes how they approach the construction of patent claims in infringement proceedings:
[a]lthough it has often been said that the question of construction does not depend on the alleged infringement… questions of construction seldom arise in the abstract. That is why in most sensible discussions of the meaning of language run on the general lines ‘does it mean this, or that, or the other?’ rather than the open-ended ‘what does it mean’?Footnote 21
Thus interests, and in particular the scope of protection enjoyed by the patentee, are typically defined by way of a process that pitches an individual right against an individual correlative duty.Footnote 22 In light of this it is unsurprising that UK courts recognise and apply common general principles in construing patent claims, legal agreements and other instruments that courts have to construe as between litigants.
One manifestation is that changes in the approach to claims construction and the approach taken to the interpretation of other legal documents have moved in parallel. Lord Hoffmann observed in Kirin-Amgen Inc v Hoechst Marion Roussel Ltd, that the purposive approach to claims construction advocated by Lord Diplock in Catnic was part of a general trend under which courts began to read documents including contracts and patent specifications with same understanding.Footnote 23 Noting that the approach to the interpretation of claims adopted by Lord Diplock in Catnic was, ‘all of a piece’ with the approach he adopted a few years later to the construction of a charterparty in The Antaios’,Footnote 24 he effectively equated Lord Diplock's approach to patents in Catnic with the ‘purposive’ construction of commercial contracts.Footnote 25
Before the decision in Actavis, Lord Neuberger too recognised that there were common general principles applicable to the construction of a range of legal instruments. In Marley v Rawlins Footnote 26 he said that the same approach should be taken to interpretation of unilateral notices as taken to the interpretation of contracts.Footnote 27 Whether the document in question was a commercial contract, a will or a patent specification, he said that its interpretation was to be approached purposively with the aim of identifying the intention of the party or parties to the document by interpreting the words used in their documentary, factual and commercial context.Footnote 28
However, by the time of judgment in Actavis Lord Neuberger had partially altered his position: a shift that reflected changes in the way courts approached the interpretation of contracts. Whilst reiterating that the principles applicable to the interpretation of contracts were shared in the interpretation of patents, this did not lead him to the conclusion that both were to be read purposively. He was of the view that purposive construction, as that term had been understood and applied, risked confusing the law relating to the interpretation of legal documents.Footnote 29 The explanation for this change in position is to be found in what Lord Hodge said in Wood v Capita Insurance Services Ltd regarding contracts:
Textualism and contextualism are not conflicting paradigms in a battle for exclusive occupation of the field of contractual interpretation. Rather, the lawyer and the judge, when interpreting any contract, can use them as tools to ascertain the objective meaning of the language which the parties have chosen to express their agreement. The extent to which each tool will assist the court in its task will vary according to the circumstances of the particular agreement or agreements. Some agreements may be successfully interpreted principally by textual analysis, for example because of their sophistication and complexity and because they have been negotiated and prepared with the assistance of skilled professionals. The correct interpretation of other contracts may be achieved by a greater emphasis on the factual matrix, for example because of their informality, brevity or the absence of skilled professional assistance.Footnote 30
Modern patent specifications are undoubtedly sophisticated and complex documents and will almost invariably have been prepared by a skilled professional.Footnote 31 If their interpretation is to be approached in the same way as contracts, then within Lord Hodges’ scheme, one would expect textual analysis then to be the principal tool used in their interpretation.Footnote 32 The factual matrix, on the other hand, one would expect to be of less significance. Whether a variant infringes because it varies from the claimed invention in an immaterial way, and in particular whether it is an equivalent, is a question that goes to building the factual matrix: it a question answered by reference to facts and expert evidence.Footnote 33 However because of the express demands of Article 2 of the Protocol, this particular aspect of the factual matrix cannot be disregarded in the construction of patent claims.Footnote 34 Lord Neuberger's solution is to make of it a discrete question independent of the question of interpretation.Footnote 35
It is unsurprising then that Lord Neuberger avoids employing the term ‘purposive construction’ to describe any of the elements within the approach he advocates in Actavis. However, called upon to interpret what he said, later courts have pointed to an inconsistency arising because Lord Neuberger makes clear that that the interpretive exercise that is the first step, requires adopting the perspective of the notional addressee of the patent in suitFootnote 36 and that the object of the exercise is to identify what the words of the claim would mean in their context to the addressee.Footnote 37 Thus, despite some of his dicta suggesting otherwise, the conclusion reached by later courts is that this first step involves a conception of purposive interpretation.Footnote 38 The current understanding is as set out by Arnold J in Eli Lilly v Genentech:
The claim must be given a ‘normal’ interpretation: Actavis UK Ltd v Eli Lilly & Co… This means a ‘purposive’ interpretation, that is to say, an interpretation which takes into account the purpose of the Patent, which is to describe and claim an invention to a person skilled in the art: Icescape Ltd v Ice-World International BV… As HHJ Hacon sitting as a High Court Judge pointed out in Regen Lab SA v Estar Medical Ltd …, it is no longer necessary to take equivalents into account in such an interpretation, because it is now possible for a patentee to contend that a patent has been infringed by virtue of the doctrine of equivalents even if it is not infringed when the claims are given a normal interpretation.Footnote 39
It is notable that HHJ Hacon (and Arnold J) understood that the effect of Actavis then was to remove a consideration of equivalents from the scope of purposive interpretation as that method had been previously understood. Actavis thus can be understood as re-positioning that consideration rather than introducing it. Indeed Lord Neuberger himself acknowledged that the particular conception of purposive construction operating before Actavis did give effect to a doctrine of equivalents, but only by way of ‘an extended version of the ordinary concept of “construction” or “interpretation”’,Footnote 40 adding that domestic law has long recognised that a product or process will infringe despite incorporating an immaterial variation from the invention as claimed.Footnote 41
The decision in Actavis prompts an enquiry into the proper scope of the process of interpretation and that issue is tackled in the final section of this paper. It also invites consideration of how UK courts previously applied the doctrine of equivalents (whether under the umbrella of ‘purposive interpretation’ or otherwise) and on what basis. The remainder of this section sets out to show that UK courts’ understanding of what is material, and within this the account they have taken of equivalent variations, are further artefacts of the ex post perspective adopted by UK courts and a further manifestation of an approach that defines interests by pitching an individual right against an individual correlative duty.
The comprehensive, detailed and influential historical review undertaken by Hugh Laddie leads him to the conclusion that, during the nineteenth century, domestic courts developed the principles of equivalents and ‘pith and marrow’.Footnote 42 As to the relationship between these, he observes that:
… the concept of equivalents is really a sub-group within the wider class of infringement by colourable evasion or by taking the pith and marrow. As far as the former is concerned, there is infringement if in the accused product or process one or more of the claimed features is replaced by an alternative. The latter cover any form of colourable imitation, whether that takes the form of omission, substitution or addition of a feature.Footnote 43
An approach to claims construction that aims to capture ‘colourable evasion’ is one in which the focus is on the scope of the legal duties arising under the claim rather than the scope of the correlative rights and is no doubt the product of the UK Courts’ historic suspicion of monopolies.Footnote 44 A consequence is that during the nineteenth century, whilst undoubtedly embracing the essence of the invention, UK courts assessed the scope of protection by a determination of the scope of the commands and prohibitions laid out in the patent specification. So for instance, in Dudgeon v Thomson, the Lord Chancellor declared:
… that which is protected is that which is specified, and that which is held to be an infringement must be an infringement of that which is specified. But I agree it will not be the less an infringement because it has been coloured or disguised by additions or subtractions, which additions or subtractions may exist, and yet the thing protected by the Specification be taken notwithstanding.Footnote 45
In Nobel's Explosive, Romer J observed that in order to make out infringement in all cases:
… it must be established, to the satisfaction of the Court, that the alleged infringer dealing with what he is doing as a matter of substance, is taking the invention claimed by the patent; not the invention which the Patentee might have claimed if he had been well advised or bolder, but that which he has in fact and substance claimed on a fair construction of the Specification.Footnote 46
Romer J's approach was confirmed by the Court of Appeal. There Smith LJ specifically addressed the significance of equivalents:
The essence of the invention… is the… bringing together… two named highly explosive substances, the result being that they tame each other… It is the bringing together of these two specific compounds, and none other, which is the essence of his invention, though I include in this the use of chemical or mechanical equivalents for the matters specified: if, however, other, matters are used which are not such equivalents, such user is not within the claim, and is not covered by the patent.Footnote 47
Thus although UK courts developed a doctrine of equivalents, the basis for so doing differed from that of Continental European courts which embraced the idea that recognition of a doctrine of equivalents was necessary to accord the inventor the full extent of the reward to which they are entitled for their inventive contribution.Footnote 48 In the UK, that doctrine was developed to restrict attempts to evade the obligations arising under the patent.
The principles of equivalents and colourable evasion (taking the ‘pith and marrow’) continued to be applied by UK Courts well into the twentieth century notwithstanding legislative changes formalising the definitional role of the claims.Footnote 49 As noted by Laddie, the argument that these changes demanded abandonment of the established principles of equivalents and colourable evasion was consistently rejected, ‘no more clearly than in the House of Lords decision in Van der Lely v Bamfords’.Footnote 50 This particular decision provides unusual insight into the doctrine of equivalents as understood and applied in the UK partly because the alleged infringing variant manifestly and unarguably performed the same function in the same way so as to obtain the same result as the patented invention. In Van der Lely then, the clarity of the reasoning was not clouded by consideration of the extent and significance of the differences in structure and function between the claimed invention (a mechanical hay-rake) and the alleged infringing device.Footnote 51 This differed from the patented invention in only one respect. In the former, the three foremost wheels were dismountable whereas in the latter this was a feature of the three hindmost wheels. There was no functional advantage gained by the variant, which was adopted by the defendants only to avoid falling within the express wording of the relevant claim. This referred to the dismounting of, ‘wheels situated hindmost in the direction of motion’.Footnote 52
The decision is also insightful because, notwithstanding that the patented invention and alleged infringing device were indisputably mechanically equivalent, the House of Lords was divided on the question of whether there had been an infringement.Footnote 53 There is accordingly an unusual degree of transparency and detail in the reasoning of the judicial committee. Lord Reid alone held that there was infringement because the ‘pith and marrow’ of the invention had been taken:
It must be true… that in framing their specification the appellants did not appreciate that the same result could be achieved by moving the foremost wheels, for otherwise they would have made their claim wide enough to cover this. But surely the same must be true of most if not all cases where there is an attempt to avoid infringement by the substitution of a mechanical equivalent: if the patentee had foreseen that possibility he would have made his claim cover it. If that were a good reason for refusing protection to the patentee against a person who later thinks of and adopts the mechanical equivalent, it seems to me that there would be very little left of this principle.Footnote 54
The majority however, held otherwise. All accepted that the ‘pith and marrow’ principle was good law.Footnote 55 Equally, there was no doubt that the patented machine and the allegedly infringing variant were mechanically equivalent. But this was understood only as a factor to be taken into account in deciding whether there had been infringement. For the majority, overriding this was the specificity and narrowness with which the relevant claims had been drafted by the patentee and the clarity of the signal this sent out to competitors. Lord Jenkins, for instance, observed that:
… whatever the reason, the appellants deliberately framed [their] claim… so as to exclude the use of the foremost wheels. That, I apprehend, left it open to the respondents to arrange their wheels in any way they chose provided they did not interfere with the appellants’ arrangement. I do not think the doctrine of pith and marrow applies here.Footnote 56
Where Lord Reid differed from his colleagues in Van der Lely was in his open acknowledgement of the difficulty facing the draftsman in anticipating competitors’ responses especially in light of deliberate efforts by those competitors to avoid the territory marked out in the claims. What Lord Reid recognised was that drawing a clearly discernible borderline by limiting protection to the literal wording of the patent claim allows third parties to circumvent an expressly claimed feature and still appropriate the material aspects of the invention. It is clear that he had this species of behaviour in mind when he said:
[c]opying an invention by taking its ‘pith and marrow’ without textual infringement of the patent is an old and familiar abuse which the law has never been powerless to prevent. It may be that in doing so there is some illogicality, but our law has always preferred good sense to strict logic. The illogicality arises in this way. On the one hand the patentee is tied strictly to the invention which he claims and the mode of effecting an improvement which he says is his invention. Logically it would seem to follow that if another person is ingenious enough to effect that improvement by a slightly different method he will not infringe. But it has long been recognised that there ‘may be an essence or substance of the invention underlying the mere accident of form; and that invention, like every other invention, may be pirated by a theft in a disguised or mutilated form..’..Footnote 57
More fundamentally, it could be said that the difference lay in where Lord Reid saw the boundary between fair and unfair competition, and in this it is important to note that the focus is on the operation of the market and is not on some notion of a fair reward in light of the patentee's inventive contribution.
The particular significance of the ‘purposive construction’ of claims, as formulated by Lord Diplock in Catnic Components v Hill & Smith nearly 20 years after Van der Lely, is that it provided a single integrated test aimed at striking an appropriate balance between the competing interests and a patent-peculiar neutral standpoint from which to apply it. Lord Diplock directed that a patent specification should be given a purposive construction:Footnote 58
The question in each case is: whether persons with practical knowledge and experience of the kind of work in which the invention was intended to be used, would understand that strict compliance with a particular descriptive word or phrase appearing in a claim was intended by the patentee to be an essential requirement of the invention so that any variant would fall outside the monopoly claimed, even though it could have no material effect upon the way the invention worked.Footnote 59
In terms of substance the Catnic decision arguably effected little change.Footnote 60 Certainly, and as before, it demanded courts take account of whether a variation had a material effect on the way the invention worked, but it did not lead to an approach that looked only to the ‘essence’ of what was claimed and with this findings of infringement merely because that essence had been made use of by the alleged infringer.Footnote 61 Rather, following Catnic, the protected invention lay in the what the inventor claimed to be the essential features of the new product or process set out in the patent specification and claims, but only those novel features claimed to be essential constituted the so-called ‘pith and marrow’ of the claim.Footnote 62
As noted in the introduction, this purposive approach remained the bedrock of claims construction notwithstanding the coming into force of the Patents Act 1977.Footnote 63 Mostly this was done by application of the three-stage reformulation of the Catnic approach following the analysis undertaken by Hoffmann J in Improver Corp v Remington Consumer Products Ltd:
If the issue was whether a feature embodied in an alleged infringement which fell outside the primary, literal or acontextual meaning of a descriptive word or phrase in the claim (‘a variant’) was nevertheless within its language as properly interpreted, the court should ask itself the following three questions:
(1) Does the variant have a material effect upon the way the invention works? If yes, the variant is outside the claim. If no—
(2) Would this (ie that the variant had no material effect) have been obvious at the date of publication of the patent to a reader skilled in the art. If no, the variant is outside the claim. If yes—
(3) Would the reader skilled in the art nevertheless have understood from the language of the claim that the patentee intended that strict compliance with the primary meaning was an essential requirement of the invention. If yes, the variant is outside the claim.
On the other hand, a negative answer to the last question would lead to the conclusion that the patentee was intending the word or phrase to have not a literal but a figurative meaning (the figure being a form of synecdoche or metonymy) denoting a class of things which included the variant and the literal meaning, the latter being perhaps the most perfect, best-known or striking example of the class.Footnote 64
The effect of Catnic, as explained in Improver, was thus as follows:
… Although equivalents and pith and marrow could no longer extend protection outside the wording of the claims, they could be used in restricted circumstances to expand the meaning of the words of the claim. The monopoly was to be restricted to the area mapped out in the claims but, in rare cases, the location of the fence posts on the edge of the map could be adjusted by application of principles of equivalents. In the result, in numerous cases after 1990, patentees in the English courts argued for a broadened scope of protection by applying the Improver Questions.Footnote 65
In Kirin-Amgen, Lord Hoffmann reiterated the view that the Catnic principle of construction was precisely in accordance with the Protocol,Footnote 66 but cast doubt on the universal utility of the Protocol questions. But by the time of the litigation between Eli Lilly and Activis, application of the Protocol questions was again being seen as helpful, not least of all because continental courts had by then adopted comparable approaches.Footnote 67 The questions’ resurrection was secured, albeit with some exegesis and reformulation, by Lord Neuberger in Actavis in the context of tackling the question of what makes a variation ‘immaterial’.Footnote 68 The significance of this is considered in the final section of this paper.
2. Patents as bargains
In the previous section it was noted that UK courts have long adopted the same approach to the construction of patent claims and to the construction of contracts. Indeed a central plank in the reasoning employed by the Supreme Court in Actavis was that the interpretation of claims should be subject to the same general principles applied in the interpretation of commercial contracts. There is some value in consistency of approach as an end in itself.Footnote 69 However, the object of this section is to show that there are sound reasons for seeing patents as a species of contract and, as a consequence, for interpreting claims in a way that is consistent with this understanding.
The vast economic literature on patents is in accord that the patent system is justified because the market advantage arising from having exclusive rights in an invention encourages investment in innovation.Footnote 70 The most frequently voiced contemporary argument in favour of patents relies on the ‘monopoly-profit-incentive’ thesis.Footnote 71 This asserts that without intervention of some kind, a market will undersupply inventions because of the failure caused by free-riding. In an unregulated market, potential producers will be deterred from making necessary investments in innovation for fear that they will not be able to appropriate the value of any resulting invention because competitors will free-ride on their investment by taking the benefit of the invention without compensating them for the costs sunk in producing it. There are, however, social costs associated with the patent system. Most obviously, patent protection is an obstacle to competition and so undermines what benefits a free market brings to any industry. These static costs of the patent system are tolerated because they are outweighed by dynamic benefits. The static view sees the patent system primarily as a means by which the patent owner gains a monopoly over a product or process for which there may be no easily obtainable substitute. However, this is offset by the dynamic impact of the patent system on investment in innovation.Footnote 72
Courts sometimes observe that it is necessary to strike a balance between competing interests and relate this object to their understanding of the economics underpinning patent law. In Actavis, for instance, Lord Neuberger said of the two questions to be addressed in deciding infringement actions that that these involved balancing the competing interests of the patentee and of clarity as much as they sought to balance the encouragement of inventions and their disclosure with the need for a competitive market.Footnote 73 What is not articulated is precisely how the adoption of a contractual approach to the interpretation of patent claims contributes to achieving this balance. Typically when courts refer explicitly to patents as contracts, this refers to a supposed bargain between the state and the inventor under which the disclosure of the invention is understood as the consideration for the grant of the patent.Footnote 74 As a justification in support of the system the notion that patents encourage the disclosure of that which would otherwise be kept secret is independent of the justification based on the monopoly-profit-incentive thesis. It is, however, a very poor free-standing justification for the patent system.Footnote 75
On the other hand, seeing patents as a kind of bargain sits uncomfortably with the rather more credible view outlined above that the patent system spurs innovation by granting inventors monopoly rights in their inventions. As observed by Sedley LJ in BASF v Smithkline Beecham:
Because the law has historically been suspicious of monopolies for well-known reasons of public policy, there is no useful analogy between a patent and a deed or a written contract. The latter two will have been drafted for a purpose which, assuming it not to be illegal or contrary to public policy, the law will do what it properly can to uphold. A patent, by publicising an invention, makes it the patentee's sole property for twenty years, so that the patentee's immediate interests are in opposition to those of the rest of the world. It is in society's longer-term interests that, by setting the two things in balance, genuine innovation should be protected and rewarded without stifling further invention.Footnote 76
The remainder of this section is directed to demonstrating that there is another way of understanding patents as bargains, unconnected with the idea that patents are granted in exchange for disclosure, and which accords with the monopoly-profit-incentive thesis.
In his famous paper on the problem of social cost,Footnote 77 Ronald Coase, in addressing behaviours that caused harm to others, departed from the solutions advocated under orthodox welfare economics directed to internalising externalised costs.Footnote 78 Coase instead saw such behaviours in terms of a conflict in a demand for the use of resources. Coase's insight was in understanding that irrespective of any initial set of legal entitlements and duties, providing that the transaction costs involved in arriving at an agreement were low, then an appropriate economic solution would be reached through bargaining between the affected parties. Put simply, an efficient allocation of resources between parties would result from private bargaining provided that bargaining was not impeded.
The normative implication that follows from this so-called Coase theorem is that where transaction costs are so high as to inhibit bargaining, then the law should be formulated with the aim of reducing those costs. But if this is not possible then the law should aim to create a set of rights and duties that the affected parties hypothetically would have agreed to if bargaining had been possible. The patent system can be understood as formulated to serve this latter object.
A starting point in understanding why this is so is the observation that infringement of a patent is a statutory tort and the Coasean perspective on tortious liability is that it serves as a substitute for explicit contracting in those circumstances where private bargaining is costly.Footnote 79 Anthony Ogus illustrates the relationship by considering the legal rules that determine the level of care which one individual must exercise towards another. He notes that in situations where the parties already have some relationship, for example, that of employer and employee, it will be relatively easy to make the determination of care by explicit contract. But such contractual arrangements are not realistically possible especially where the parties have no pre-existing relationship before the event that caused the loss or harm. Where this is so, the task for the law is then to prescribe by means of tort law the level of care which the parties presumptively would have agreed if they had been able to make the relevant bargain.Footnote 80
If we are to apply the same kind of reasoning to the patent system, then the first necessary adjustment requires substitution of the allocation of a liability based on a hypothetically agreed duty to take care with the allocation of a privilege based on an agreed hypothetical acceptance of a burden of risk. To illustrate, consider for instance two firms competing in the marketplace with similar capacities such that each is able to maintain a competitive position vis-à-vis the other. Both firms invest in innovation to improve their competitive position. In making individual investment decisions, each firm will take account of the following:
The costs of any particular research project up to the point when a potentially useful invention results together with the costs of incorporating that invention into a marketable product and bringing it to market (X).
The overall income generated by marketing the product incorporating the invention (taking account of manufacturing costs). This will be a function of consumer demand over time (Y).
The probability of arriving at a useful invention (P).Footnote 81
For either firm, a research project will only be initiated if P (Y - X) is positive. Since the firms have similar (though precisely different) capacities, then for any given project, whether P (Y - X) is positive or negative is likely to be the same for both. Note, however, that just because P (Y - X) is positive this does not guarantee an invention will be arrived at (assuming P is always less than 1) and still less that any profit will be generated from that invention.
Because their precise capacities differ, we might expect each firm to vary in respect of any or all of X, Y and P such that, for a particular project, P (Y - X) will be greater for one compared to the other. This will reflect, for that particular project and that particular firm, a higher probability of success, and/or lower costs, and/or a higher capacity for generating income.
In the entirely hypothetical situation of low transaction costs and perfect information (that is to say accurate knowledge of P, Y and X for themselves and the other party) then as rational economic entities the firms would bargain so as to allocate between themselves the costs and the benefits of the research project in light of the risk of failure. If, for example, that for firm A, PA (YA - XA) = 50 whilst for firm B, PB (YB - XB) = 100 an agreement would be entered into under which firm B would agree to bear the risk of undertaking the research project in return for some form of valuable consideration from firm A.Footnote 82
The uncertainty of success underpins firm B's incentive to enter into such an agreement; an effect amplified by likelihood that the investments made in the project will be irreversible.Footnote 83 For Firm B then, entering into the agreement reduces the costs of possible failure.Footnote 84 The incentive for firm A is in the possibility of access to any arising invention (and with this the benefits flowing from that) at a lower cost than if firm A attempted the project itself. In essence, then, firm A is outsourcing.Footnote 85
Since the incentive for firm A is in gaining access to any arising invention, then the agreement would necessarily include the condition that Firm B disclose any arising invention to Firm A. But the obligation to disclose is not Firm B's sole consideration and indeed is contingent on Firm B's primary obligation which is to bear the risk of undertaking the research project. This is an important difference between this view of the patent bargain and the one traditionally advanced.
In reality such bargains are not possible for a number of reasons. In the first place it is extremely difficult to attach values to the variables P, X and Y even within a firm. Whether a particular research and development project succeeds depends on an ‘inextricable tangle of objective uncertainties’.Footnote 86 Of course firms will try to evaluate the cost effectiveness of any proposed projectFootnote 87 but at the point where early investment decisions are made nearly all the variables that feed into a decision to invest in a particular research project will be uncertain. The costs that will be necessary to arrive at a desirable outcome cannot be known with certainty until they are actually incurred and these will be borne long before any revenue is realised. At that stage, the likelihood that a particular research project will be successful in the sense of producing something useful also cannot be known with certainty. And assuming that the project is successful, the revenue-generating value of any product coming out of the project will only become clear once that product is commercialised.Footnote 88 In short, substantial uncertainty surrounds the entire process and output can never be predicted with much accuracy from the inputs.Footnote 89
Under this imagined arrangement, neither of the firms’ interests are in opposition to the other: both anticipate benefiting under the arrangement. But although both parties anticipate profiting, third party free-riders risk undermining this.Footnote 90 Without the ability to exclude others, neither firm will be able to profit if the project succeeds and no degree of risk will be considered worth bearing.Footnote 91 On the face of it, this impediment catastrophically undermines the notion that the patent system serves as a substitute for explicit bargaining between private individuals. Only the state is in a position to accord a legally enforceable monopoly right in an invention exercisable against the whole world. It would seem to follow that it we are to think in terms of bargains, then the state must occupy the position of Firm A since only the state can offer Firm B valuable consideration in the form of a monopoly right in return for Firm B's undertaking to invest in research. This reasoning returns us to the commonplace understanding under traditional welfare economics that a patent is a state-granted monopoly granted to a private individual so allowing that individual to internalise what would otherwise be positive externalities arising from their investments in innovation.
There is, however, an alternative way of thinking about the problem of third party free-riders which accords with Coasean economics. This involves a more detailed analysis of the parties to the hypothetical bargain. Both firms are active economic entities with a capacity to undertake research and development and which are capable of profiting from that activity by utilising any invention that arises. For a particular set of values of P, X and Y, Firm A cannot match Firm B's efficiency in R&D, and so opts to buy this service rather than undertake it in-house. For different values of P, X, and Y then the respective commitments might be reversed. Up to this point it has been convenient to imagine these firms as close competitors where the differential is slight and differences in their respective capabilities subtle. But there is no reason why Firm A should be understood to be in direct competition with Firm B. Indeed, as noted above, in the hypothetical agreement Firm A is engaged in outsourcing. In circumstances where the two firms operate in different markets, barriers to market entry will have a significant effect on all of the values of PA, XA and YA. But this is just a matter of degree and from Firm A's perspective this just makes the case for outsourcing more compelling.
If Firm A is understood to be any and all firms no matter how remote their normal market is from that of Firm B, then the problem of third party free-riders disappears: there are no third parties whose interests differ in anything other than degree from those of either Firm A or B such that they cannot be conceived of as parties to the hypothetical agreement. The position is similar to the Coasean perspective on the rules in tort that determine the level of care that car drivers owe to each other. Under this view, contractual arrangements as between all car drivers are not realistically possible and tort law thus prescribes the level of care which the parties presumptively would have agreed if they had been able to make the relevant contract. Despite any number of differences between drivers that in other contexts might matter, they are united by shared use of public roads and when driving they are in similar circumstances. Thus the hypothetical agreed duty can be assumed to be a mutual level of care.Footnote 92 So it is that although there are manifest differences between all firms operating in the market, they have in common that investment decisions, including those relating to research and development, require them to consider whether to ‘make or buy’.
If Firm A is understood to be any and all firms no matter how remote their normal market is from that of Firm B, a further impediment to bargaining, in addition to the unknowable values of P, X and Y, is the costs associated with entering into a finite but nevertheless very large number of agreements. For the same reason that it is not practically feasible for all car drivers to enter into contractual arrangements with all others prescribing the levels of care owed, so too is it not possible for firms operating in the market actually to arrive at an agreement that allocates the costs and the benefits of innovation.Footnote 93
Generally it is desirable for any firm entering into an outsourcing agreement to specify what is within the agreement and to accurately define levels of service.Footnote 94 Earlier in this section I noted that Firm B's primary obligation under the hypothetical agreement is to bear the risk of undertaking research. A problem facing Firm A is knowing if Firm B has fulfilled its obligations: a problem that becomes acute if the two firms normally operate in different markets and have different capabilities. Motivated by a desire to increase the prospect of a reward under the bargain, Firm B might for instance prefer to invest in merely incremental innovation because the outcome is more predictable. Firm A can avoid this by including within the bargain determinable measures of risk. For instance, a demand that what is arrived at make some advance over the state of the art would prevent Firm B from claiming success where its ‘innovation’ involved no more than clever marketing efforts that dressed up an existing product or process as something new.Footnote 95 Firm B could be pushed into a higher degree of risk-taking by a requiring that the arrived at outcome not be an obvious development over the prior art.Footnote 96 In many respects then the hypothetical agreement for which the patent system acts as a substitute can be seen as relating to the provision of a service (in effect research and development). The utility of the outcome of the research effort is guaranteed by the requirement that anything arrived at be of some use in industry. But because the patent system must serve as a substitute for multiple hypothetical agreements spanning many technologies, the measure of success can be no more specific than demanding that which is arrived at is new, involves an inventive step and is capable of industrial application.Footnote 97 In this respect the patent system can be seen as operating in much in the same way as, for instance, the tort of negligence, which supports claims to any number of unspecified harms providing only that these are foreseeable consequences of the tortfeasance.
In return for Firm B's obligation under the hypothetical agreement to bear the risk of undertaking research, the consideration provided by Firm A could take one of three forms, the relative value of each turning on the values of P, X and Y:
1 Firm A may agree itself not to exploit any arising invention for an agreed period. This option will be especially attractive to A if ‘P’ is low and to B if ‘Y’ is high.
2 Firm A may agree to pay all or some of the costs for firm B to undertake the project with then an agreement for A to share the benefits of any arising invention. This will be especially attractive to A if ‘P’ is high and to B if ‘X’ is high).
3 Or Firm A may promise to pay Firm B a set fee on the successful completion of the project. This will be especially attractive to A if ‘P’ is low and to B if ‘Y’ is low).
There is no need here to engage in a detailed evaluation of these forms. It is enough to note that if the substitute for explicit bargaining adopted the first form of consideration, the substitute would look something like the patent system. If the substitute adopted however the second form, it would look rather like a system of subsidies, whilst adoption of the third would produce a substitute in the form of a system of prizes. That ex ante typically the values of P, X and Y are in reality uncertain goes some way to explain not only why all three means of encouraging inventive activity exist contemporaneously but also why there are vigorous arguments as to which is to be preferred.
Of course ex ante, the specific content of the claims cannot be specified: specific claims can only be drafted ex post assuming Firm B's efforts result in an invention. However, that doesn't mean to say that there can be no ex ante agreement as to how to approach the interpretation of the claims – that is to say a shared intention as to their effect. An ex ante bargain that adopts form 1 sees the intended role of the claims as defining the scope of the obligations of Firm A under the agreement. This understanding corresponds to the approach to the interpretation of claims adopted by UK courts prior to Actavis. For instance, Lord Hoffmann's account of the ‘purposive’ approach to the reading of patent claims in Kirin-Amgen is based on an imagined dialogue:
Construction, whether of a patent or any other document, is of course not directly concerned with what the author meant to say. There is no window into the mind of the patentee or the author of any other document. Construction is objective in the sense that it is concerned with what a reasonable person to whom the utterance was addressed would have understood the author to be using the words to mean. Notice, however, that it is not, as is sometimes said, ‘the meaning of the words the author used’, but rather what the notional addressee would have understood the author to mean by using those words.Footnote 98
The following section evaluates the Supreme Court's decision in Actavis in light of the understanding that the patent system serves as a substitute for a hypothetical bargain between economically active entities under which a duty is accepted by one party in return for acceptance of a burden of risk by the other.
3. Interpretation, implication and equivalents
As noted earlier in this paper, Lord Neuberger has repeatedly said that the principles applicable to the interpretation of patent claims are common to those applicable to the interpretation of contracts. However, in Actavis he said that those principles applied only to the question of whether an alleged infringer's variant falls within the scope of any of the claims as a matter of ‘normal interpretation’. Lord Neuberger was of the view that normal interpretation, so understood, was capable of capturing only certain kinds of equivalents.
While normal principles of interpretation could, I think, accommodate the notion that ‘vertically’ extended to an item which was not at precisely 90° to another item, I do not see how such principles could possibly lead to the conclusion that a slotted rubber rod was within the expression ‘helical metal spring’. As Hoffmann J said in Improver…, ‘the angle of the support member [in the allegedly infringing product in Catnic…] can be regarded as an approximation to the vertical’, but ‘[t]he rubber rod is not an approximation to a helical spring’.Footnote 99
But in Lord Neuberger's view, an equivalent lying outside the scope of the claims interpreted ‘normally’ may nevertheless infringe because it varies from the claimed invention immaterially. This requires not merely identifying what the words of the claim would mean in their context to a notional addressee but also a consideration of the extent to which the scope of protection should extend beyond that meaning.Footnote 100 On the face of it this second question is of a different character from the first. If, as argued above, Coasean economics supports the purposive approach to claims construction as understood and applied by Lord Hoffmann in Kirin-Amgen, the question following Actavis is whether Lord Neuberger's distinction between interpreting a claim and the extent of the protection afforded by a claim undermines this foundation. In particular, the issue is whether Lord Neuberger's second question, as much as the first, can be understood and so justified as giving effect to the presumed intentions of the parties to the hypothetical agreement, or is it that in the case of a patent the words alone, ‘properly interpreted’, mark the limits of what the parties can be said to have intended the effect of the claims to be.
In other legal contexts, courts do not confine themselves only to ‘normal interpretation’ in divining the presumed intention behind a document. Notably, there are manifest parallels between the two-stage approach to the construction of patent claims adopted in Actavis and how courts see the relationship between interpretation and implication. As explained by Lord Hodge:
Whether words are to be implied into a document depends on the interpretation of the words which the author or authors have used. The first question therefore is how to interpret the express words…
Interpretation is not the same as the implication of terms. Interpretation of the words of a document is the precursor of implication. It forms the context in which the law may have to imply terms into a document, where the court concludes from its interpretation of the words used in the document that it must have been intended that the document would have a certain effect, although the words to give it that effect are absent.Footnote 101
As Lord Hodge makes clear, although the stages of interpretation and implication are distinct, they nevertheless both aim at arriving at the intended object of the document. So far as contracts are concerned, it has long been recognised that courts will imply terms where this is necessary to give effect to the presumed intentions of the parties. Frequently cited in this respect are Bowen LJ's observations in The Moorcock:
Now, an implied warranty…, as distinguished from an express contract or express warranty, really is in all cases founded on the presumed intention of the parties, and upon reason. The implication which the law draws from what must obviously have been the intention of the parties, the law draws with the object of giving efficacy to the transaction and preventing such a failure of consideration as cannot have been within the contemplation of either side; and I believe if one were to take all the cases, and they are many, of implied warranties or covenants in law, it will be found that in all of them the law is raising an implication from the presumed intention of the parties with the object of giving to the transaction such efficacy as both parties must have intended that at all events it should have.Footnote 102
The initial point to draw from the way courts approach the implication of terms is that the hypothesis that patent law is best understood as a substitute for an explicit bargain does not of itself demand that claim scope be limited by the ‘normal interpretation’ afforded to the express words used in a claim. Beyond that, it is worth highlighting some of the similarities between the approach to the implication of contractual terms and the approach to the construction of patent claims advocated by Lord Neuberger in Actavis. A term will be implied in circumstances where a court finds that on a contract's proper construction, the parties must have intended to include that term and this task is undertaken in the light of the express terms, commercial common sense, and the facts known to both parties at the time the contract was made.Footnote 103 The proper construction of patent claims takes account of essentially the same set of concerns, albeit using the more structured application of the ‘Protocol questions’.Footnote 104 Thus, the third Protocol question takes account of the express wording of the claims whilst the facts known to the parties is accounted for in the first question. The application of ‘commercial common sense’ is more contextualised in claims’ construction finding expression in the second protocol question's enquiry into what the person skilled in the relevant art would find obvious, and in that person's understanding of the patentee's choice of words contained in the third question.
The adoption of the objective viewpoint of the person skilled in the relevant art does not undermine the argument that the construction of patent claims has in common with the implication of contractual terms a search for presumed intention. In the first place, what is suggested above is that the law substitutes for a hypothetical agreement and the person skilled in the relevant art is a convenient occasional proxy for one or other party. Furthermore, in the case of actual agreements, the process of implication, though said to be a search for presumed intention, does not depend on establishing the actual intention of the parties. Rather, courts approach the exercise from the perspective of notional reasonable people in the position of the parties at the time at which they were contracting.Footnote 105 The similarities between this perspective and that of the person skilled in the relevant art in construing claims becomes clearer in the alternative formulation of how implication is to proceed articulated by Lord Neuberger in Marks & Spencer v BNP Paribas Securities Services Trust:
… the notion that a term will be implied if a reasonable reader of the contract, knowing all its provisions and the surrounding circumstances, would understand it to be implied is quite acceptable, provided that (i) the reasonable reader is treated as reading the contract at the time it was made and (ii) he would consider the term to be so obvious as to go without saying or to be necessary for business efficacy. (The difference between what the reasonable reader would understand and what the parties, acting reasonably, would agree, appears to me to be a notional distinction without a practical difference.)Footnote 106
To take the specific example of claims construction that troubled Lord Neuberger in Actavis, the question then is not whether the a slotted rubber rod falls within the expression ‘helical metal spring’ as a matter of interpretation, but rather whether the parties to the hypothetical contract that lay at the heart of the Improver litigation, acting reasonably and knowing its provisions and the surrounding circumstances, can be presumed to have intended that ‘a slotted rubber rod’ was to be within the scope of the claim to a ‘helical metal spring’. Since we are construing a patent, the Protocol questions are deployed in order to answer to this question. The construction of the claims at the centre of the Catnic litigation can be thought of in the same way. Although Lord Neuberger was prepared to concede that normal principles of interpretation could accommodate the notion that ‘vertically’ extended to an item which was not at precisely 90° to the horizontal, accommodation of that variant could also be achieved by implying the word ‘substantially’ into the relevant claim on the basis of presumed intention.Footnote 107
Because implied terms operate as ad hoc gap fillers,Footnote 108 there must be some gap to fill. So when it comes to considering the centrally relevant words to be interpreted, the less clear they are (or the worse their drafting), the more ready a court will be to depart from their natural meaning. Conversely, the clearer the natural meaning the more difficult it is to justify departing from it.Footnote 109 In contract law then, express terms are taken to be primary indicators of presumed intention. Extending the same reasoning to patent claims would lead to the conclusion that greater precision makes it harder for courts to construe a claim as embracing a variant that falls outside the wording of the claim.Footnote 110
It is in this respect that the approach to claim construction advocated by the Supreme Court's in Actavis ceases to parallel the approach taken to the construction of contracts and with this risks undermining a justification of the approach grounded in Coasean economics. It is also in this respect that the decision in Actavis departs most significantly from the approach to claims construction previously advocated by UK Courts, both pre- and post Catnic.
The claim in issue, owned by Eli Lilly, was to the use of pemetrexed disodium in the manufacture of a medicament for use in combination with vitamin B12 for the treatment of cancer. The defendants, Actavis, produced products also for use in the treatment for cancer consisting of either a different pemetrexed salt, or pemetrexed diacid, in combination with vitamin B12. Actavis argued that their products did not infringe because the claims of the patent were limited to the specific salt: pemetrexed disodium.
The Court of Appeal considered that the notional addressee on reading the specification would appreciate that the patentee has chosen to claim narrowly and by reference to a single chemical, and not broadly by reference to any class. Floyd LJ observed that pemetrexed disodium was a highly specific chemical compound and that, ‘there is no obvious leeway as a matter of language for giving it a broad as opposed to a narrow construction’.Footnote 111
Lord Neuberger in the Supreme Court was of the view that this approach placed too much weight on the words of the claim, adding that this demonstrated:
… the risk of treating the issue raised by the third question as being one of normal interpretation. (Another way of looking at the point is, in the language of Sir Hugh Laddie, that it involves wrongly conflating the issue of interpretation with the issue of scope of protection.) As already explained, if it was a decisive point it would make a nonsense of asking the three questions: if one cannot depart from the language of the claim when considering those questions, what is the point of the questions in the first place?Footnote 112
On the face of it, this willingness to depart from the specific language of a narrowly drawn claim is inconsistent with a search for the presumed intentions of the parties to the hypothetical bargain for which patent law serves as a substitute. A preliminary conclusion then might be that the approach to claims construction advocated by Lord Hoffmann in Kirin-Amgen is to be preferred over the formulation adopted by Lord Neuberger in Actavis.
However, there are good reasons to doubt that the same intention can be presumed from narrowness and specificity as a feature of the terms of a contract and from the same characteristic of patent claims. The assumptions underpinning the implication of terms in contracts is that specificity is costly. It is this understanding that informs how far, in any individual case, ‘textualism’ is privileged over ‘contextualism’ in ascertaining the meaning of the language which the parties have chosen to express their agreement.Footnote 113 Put another way, courts assume that a contract will be incomplete if, at the time it was made, the transaction costs to the parties of explicitly contracting for a particular contingency were seen as greater than the benefits. Typically this will be the case if the parties thought the probability of the contingency occurring was low.Footnote 114 The way courts approach the implication of terms thus aims to minimise the costs of contracting. In default, courts will imply terms that notional reasonable people in the position of the parties at the time at which they were contracting would have agreed to. The parties thus do not have to bear the costs of explicitly addressing remote contingencies. But it follows from this that if the parties do bear the costs of specifying what is to happen in a particular circumstance, then they must have intended that outcome even if a reasonable person in the same position would have thought otherwise.
Patent claims differ from contractual terms in that generally narrow and specific claims that cover only one particular embodiment of the invention involve lower drafting costs than claims of wider scope that attempt to capture a range of variants. A patent specification does two things – its purpose is to both to describe and to demarcate an invention.Footnote 115 The first of these is fundamental, and the closer these two objects the lower are the costs of drafting. As explained above, any bargain under which a privilege is allocated in return for acceptance of the burden of risk associated with innovation will include the essential condition that any arising invention be disclosed. In patent law this fundamental condition finds expression in the requirement that the specification must describe the claimed invention clearly and completely if a patent is to be granted.Footnote 116
The costs of so describing an invention are thus inescapable. The costs of demarcation are not but they can be reduced by piggy-backing on a description of the specific embodiment that the patentee has reduced to practice. Until recently the easiest way this could be done was by way of an ‘omnibus claim’ in the form, ‘what is claimed is “X” substantially as described herein with reference to any accompanying drawings’ or some formula to similar effect. This was a claim form that was typically understood to be limited to the specific embodiments described and depicted.Footnote 117 Prior to the use of such claims being restricted under the UK Patents Rules,Footnote 118 such claims were considered useful for achieving a quick grant and/or where the anticipated benefits from grant required only a narrow scope of protection.Footnote 119 They were also often routinely included in specifications as a guard against all other claims being found bad.Footnote 120 The key point to understand is that the benefits obtained from such claims were gained at a very low drafting cost.
In the majority of cases a patentee will seek to maximise the scope of protection by claiming beyond the specific product they have made or specific process they have implemented. For instance, if the invention is a new product which has a beneficial effect, a patentee seeking to maximise the scope of protection will set out to demonstrate that there is a common principle by which that effect will be shared by other products of the same class.Footnote 121 To do so goes beyond the costs of providing a description that would allow the skilled addressee to arrive at an effective product. The inescapable and minimum costs are in describing a single embodiment that can, ‘deliver the goods’ but there are greater costs involved in drafting claims that cover other ways in which they might be delivered.Footnote 122 In Van der Lely, Lord Reid tangentially acknowledged these costs in his observation that if the patentee had foreseen the possibility of avoiding infringement by the substitution of a mechanical equivalent, he would have made his claim cover it.Footnote 123 However, to do so would have been more costly than simply claiming the specific arrangement of wheels actually adopted in the patentee's hay-rake. As Lord Reid indicates, narrow and specific claims do not necessarily evidence intended scope and to this extent, patent claims should be treated differently from contractual terms.
Although narrow and specific claims do not necessarily evidence intended scope, there are circumstances where claims are deliberately so drafted with the intention of narrowing the scope of protection. Commonly this will be done so as to avoid some piece of prior art and so meet an actual or potential objection that the claimed invention either lacks novelty or is an obvious development in light of the prior art. There will thus be circumstances where the presumed and actual intention do not coincide.
The Supreme Court's decision in Actavis has done little to change the reluctance of UK courts to consider and act on extrinsic evidence of actual intention as to claim scope. In particular courts have discouraged, without prohibiting, the use of the patent office file (the ‘prosecution history’ of the patent) in aid of construction.Footnote 124 In Actavis Lord Neuberger accepted the established position as apt and added that:
… reference to the file would only be appropriate where (i) the point at issue is truly unclear if one confines oneself to the specification and claims of the patent, and the contents of the file unambiguously resolve the point, or (ii) it would be contrary to the public interest for the contents of the file to be ignored. The first type of circumstance is, I hope, self-explanatory; the second would be exemplified by a case where the patentee had made it clear to the [patent office] that he was not seeking to contend that his patent, if granted, would extend its scope to the sort of variant which he now claims infringes.Footnote 125
The scepticism displayed in relation to extrinsic evidence is consistent with the understanding that patents are sophisticated and complex documents and like other forms of commercial agreement, textual analysis is the principal tool used in their interpretation.Footnote 126 However, the factual matrix is not entirely irrelevant and whilst of less significance in interpreting such documents, courts have acknowledged that it can occasionally provide assistance. In particular, courts have acknowledged that the negotiators of complex formal contracts may not achieve a logical and coherent text and the factual matrix may be helpful in interpreting unclear provisions.Footnote 127 So far as patents are concerned, courts have similarly acknowledged that whilst access to the patent office file will typically be of limited assistance, it will sometimes be useful.Footnote 128 The specific circumstances identified by Lord Neuberger where this would be so are consistent with the notion that the patent system serves as a substitute for a hypothetical bargain under which a duty is accepted by one party in return for acceptance of a burden of risk by the other. As explained above, under this understanding, the claims set out the scope of the duty owed by the outsourcing party. As with contractual terms, if the claims are unclear then it is appropriate to look to the factual matrix to help in their interpretation. In return the other party offers to take on the risks associated with research and development; an obligation guaranteed by demanding that any claimed invention be new and inventive. Lord Neuberger's second circumstance provides some protection against claims extending to that which is old and obvious, so allowing one party to gain an unmeritorious advantage over the other.
Conclusions
The analysis presented above supports the approach to claims construction advocated by the Supreme Court in Actavis. But the reasoning advanced by the Court shares with the decisions that preceded it a lack of theoretical foundation, making the conclusions that that can be drawn from Lord Neuberger's reasoning rather narrower than they might otherwise be. This, notwithstanding that the Actavis decision, as much as the ones that preceded it, claims to implement relevant rules and give effect to relevant principles. But other than an occasional and passing reference to the competing interests at play, what is absent is a grounding in the economics of the patent system. This lack of theoretical foundation makes any approach vulnerable and this is as true of the Supreme Court's decision in Actavis as much as it is of the earlier UK decisions that the Supreme Court criticised in that case. A few months after the Supreme Court handed down its ruling, the Singaporean Court of Appeal was called upon to consider whether the principles enunciated in Actavis ought to be applied in Singapore.Footnote 129 The Court noted that the position in Singapore was largely aligned with that in the UK as it stood prior to the decision in Actavis and that Singapore courts had endorsed and applied the purposive approach to patent construction developed by UK courts. Nevertheless it declined to embrace a doctrine of equivalents as that was understood and applied by Lord Neuberger. In line with the reasoning adopted by Lord Neuberger, the Singaporean Court was of the view that the doctrine of equivalents was made part of UK law only by virtue of Article 2 of the Protocol and the legal position was otherwise in Singapore.Footnote 130
It is certainly the case that Lord Neuberger built his argument around the wording of the terms of the Protocol, and in particular Article 2 which he said meant that equivalents must be taken into account. But at the same time he acknowledged that no guidance was given as to how that was to be done.Footnote 131 That being so, Lord Neuberger's interpretation of the demands of Article 2 of the Protocol is no more compelling than that of Lord Hoffmann who, in Kirin-Amgen, expressed the view that Article 2 required only that equivalence be included within the background of facts known to the skilled man that informed his understanding of the claims.Footnote 132 The vague directions of both versions of the Protocol have admitted a range of approaches to claims construction and to this extent provide an insecure foundation for any one, including that advocated in Actavis.
The argument advanced in this paper is that economic theory provides a better foundation for the approach adopted in Actavis and indeed for UK courts approach to claims construction more generally. In particular, from a Coasean perspective, the patent system can be seen as a substitute for an explicit bargain between economically active entities operating in the market under which a privilege is allocated in return for acceptance of a burden of risk. This understanding provides a foundation for the adoption of methods typically applied to the interpretation of contracts to the construction of patent claims. That common approach has been a feature of UK law for decades. Of course there is no evidence that in this Courts have embraced economic theory or have otherwise appreciated the implications arising out of Ronald Coase's paper on the problem of social cost. This happy coincidence is probably an artefact of an approach to claims construction in which the focus is on the effect that a particular construction will have in the market, rather than one which attempts to reward the patentees’ inventive contribution. Interests are thus typically defined by way of a process that pitches an individual right against an individual correlative duty. In light of this it is unsurprising that UK courts recognise and apply common general principles in construing patent claims and contract terms. A core object of those common general principles, applied to the interpretation and implication of terms, is to give effect to presumed intention of the parties; an object which implicitly takes account of the costs of bargaining and the operating presumptions of UK patent law can be rationalised as minimising these costs.
