Protecting rights of design

The design provisions of the Copyright Designs and Patents Act 1988 for settlement of "licence of right" by the comptroller general of patents in the absence of agreement between the parties has just been put to the test for the first time.

And the outcome is one that intellectual property law experts at Nabarro Nathanson, which is closely involved in what is an on-going piece of litigation, say throws out significant guidelines for the future.

It gives a clear picture of the approach the comptroller general can be expected to adopt in such cases, particularly in determining royalty rates.

The case involves a design for a petrol-driven impact wrench for tightening bolts on rail lines.

But it is easy to see how the licences of right provisions of the 1988 act in respect of designs and copyright under the transitional provisions, which are analagous to the licence of right provisions for patents, could prove an attractive proposition to manufacturers anxious to cash in on trendy or otherwise valuable functional designs of best-selling and expensive products.

In this case Italian-based Airtec SRL took out injunctions to stop R Bance & Co – its UK distributor until a breakdown in the business relationship – producing the wrenches.

Under the provisions of the 1988 act design right has five years of absolute protection. After that there is a five-year period when others have a right to use them, subject to payment of licence fees. After that, protection ceases.

It is when the terms of these "licences of right", particularly the level of royalties in respect of the second five-year period, cannot be agreed between the parties that the comptroller general is called in to decide what he thinks they should be.

In this case, once the five years were up, Bance applied for a licence and when the terms could not be agreed went to the comptroller general to ask him to fix terms.

Nabarro Nathanson's Andrew Inglis, who represented Airtec, says the outcome was an important pointer for those making similar applications in the future as to the way such licence fees will be assessed.

The only previous law to be drawn on in this field related to similar licence by right applications relating to patents.

There is a substantial body of law here. However, this is the first time the new provisions in relation to designs had been tested in this way and one of the main points at issue was the status of designs when compared with patents.

Particularly at issue was to what extent the law on patent licences of right applied to designs. Was design copyright to be seen as a lower form of life in the intellectual property hierarchy, so attracting lower royalties?

In the end there seems little doubt that the arguments of Michael Hicks, who Inglis instructed, persuaded the comptroller that in the intellectual property field patents and designs are to be treated as equals, at least in approach.

"In the end the examiner went for a market rate, taking into account market circumstances," says Inglis. "It had been pointed out that designs can have huge commercial value and could therefore attract high royalty rates.

"Put in a nutshell, the test to be applied in the light of the recent decision has to be seen as the patent test of what the willing licensor would pay to a willing licensee. The way the decision was approached has thrown light on what promises to become a significant area of intellectual property law."

This battle is over, but others are in the pipeline. High Court confrontation can be expected early next year when the two sides will meet in the Chancery Division to fight over infringement and passing off issues.