Patents Court Finds Alleged Penalty Clause Is Firm But Fair

• Published date: 26 May 2021
• Subject Matter: Intellectual Property, Patent
• Law Firm: Reynolds Porter Chamberlain
• Author: Ms Jessica Pease

The background

Steven Makin (Makin) and Timofei Yeremeyev (Yeremeyev) supplied products (mainly roofing) to the construction industry through a group of companies, including the Claimants, Permavent and Greenhill. Makin invented and patented roofing products under the name 'Easy Roof System' and, in 2014, he granted a licence to Permavent to manufacture, use, sell and supply the Easy Roof System products.

In 2016, the relationship between Makin and Yeremeyev broke down. Makin left the business in 2017, purporting to terminate the patent licences and withdrawing permission for suppliers of certain Easy Roof System products to produce patented products.

Permavent brought a claim against Makin in July 2017 and sought (i) a declaration that Permavent owned the patents and patent applications (the IP Rights); and (ii) an injunction preventing Makin from transferring or licensing the IP Rights. The parties subsequently entered into a settlement agreement under which Makin assigned the IP Rights to Greenhill. Additionally, in return for his agreement not to challenge the ownership/validity of the IP Rights, Makin would be entitled to various payments, which would be forfeited/repayable in the event of a breach. Permavent stopped making the payments when Makin sought to register an interest in the IP Rights.

Makin was found to be in breach by way of summary judgment so the issue before the Court was whether the clauses constituted an unenforceable penalty.

The decision

The Patents Court held that the relevant clauses were not unenforceable as penalties.

Referring to the Supreme Court decision in Cavendish Square Holding BV v Talal El Makdessi (Cavendish), the judge noted that whether an obligation amounts to a penalty depends on (i) whether legitimate business interests are served and protected; and (ii) whether the

detriment imposed on Makin was extravagant, exorbitant...