a licence or licences upon reasonable terms, the trade or industry or agriculture of the Republic or the trade of any person or class
of persons trading in the Republic, or the establishment of any new trade or industry in the Republic, is being prejudiced, and it
is in the public interest that a licence or licences should be granted;
(7) In determining the conditions on which any licence is granted the commissioner shall have regard to any relevant facts, including
the risks to be undertaken by the licensee, the research and development undertaken by the patentee and the terms and conditions
usually stipulated in licence agreements in respect of the subject-matter of the invention, between persons who voluntarily enter
into such agreements. (8) Any order of the commissioner under this section shall be made with a view to avoiding the abuse found
by the commissioner to have been established.
Abuse of the patent rights is the cornerstone of the provision. A jurisdictional fact which the appellant was required to demonstrate
under (2)(a) was thus that the "patented invention" was not being
8 "worked" in the Republic on and to the requisite scale or extent. With
regard ss (2)(d) a jurisdictional fact to be proved was a "refusal" to
grant a licence on "reasonable terms".
The general rule, which can so far as this appeal is concerned
be stated in its broad formulation and without reference to its
refinements, is of course that an applicant must make out its case in
the founding papers. The case which the appellant sought to make out
has, as indicated, some unusual features. The licence it sought was
one to produce only the product "propiconazole" and only "for the
purposes of export to countries where no (corresponding) patent
exists". This is amplified by the statement that it "does not seek a
licence to sell propiconazole or propiconazole - containing
compositions for use in South Africa". This is stated twice. The
affidavit also makes it clear that no licence was sought in respect of
the processes claimed (as appellant asserted that it had devised its
own process based on starting materials not considered in the patent).
9 Finally it is said that if it delayed manufacture until November 1996
(the expiry date) it would lose ground in the external "generic fine
chemical market". Its anticipated success in that field was said to be
vital to its straitened financial position (the result of an incorrect
commercial decision taken by its distributor). Thus it proclaimed the
grant of the licence was "critical for [its] survival". This hardly
suggests that any benefit to the South African public was a serious
consideration.
With that as a background one may turn to what is said in
relation to the jurisdictional facts. The introduction is a statement that
"propiconazole in the form of a commercially useful formulation is
sold in South Africa by [Ciba]" which is recorded as an exclusive
licensee - and that the "active ingredient" is not (to the best of the
deponent's belief) manufactured by either Ciba or the patentee in
South Africa. It is then said: "Thus the patented invention i.e. the
process for the production of propiconazole and propiconazole so
10 produced, is not being worked in South Africa on a commercial scale
or to an adequate extent, and there is ... no satisfactory reason for such
non-working."
This amounts, in truth, to little more than a recitation of the words of the subsection and is not a statement of facts from which
the necessary legal conclusion can be drawn. The uses of and need for the product by the South African public and the desirability
and feasibility of local production are not addressed. In particular what is overlooked is the fact that ss (2) is a statutory code.
Importation is a topic addressed in ss 2(b) and (e) (which are not invoked). For the purpose of ss (2)(a) it will suffice if the
patentee can show working (in Afrikaans "ge-eksploiteer") in any form. Non-working of the process claims is irrelevant
because no licence is sought for the processes. Working of the product claims by importation is conceded in the paragraphs quoted
above.
It is, in any event, also plainly established in the answering
11
affidavits that the invention is being worked where it is said that the market in South Africa (in the case of propiconazole) is being
met by the importation by Ciba of the active ingredient and the making up thereof into an emulsifiable concentrate in South Africa.
The answering affidavits in fact go further to state that the patentee and its licensee are "able fully to supply the South
African market on reasonable terms". For the sake of completeness I might add that in the answering affidavits it is also asserted
that sound economic reasons underlie the decision not to manufacture the active ingredient locally. These considerations are of course
only relevant to further inquiries which could arise if the initial allegation of abuse was made out.
Since what I have set out above from the founding affidavits fails to establish an abuse there is no need to consider the discretionary
aspects of the inquiry which arise for example under ss (7) and (8). I am thus of the view that no abuse under ss (2)(a) has
12 been made out and that appellant failed to make out its case on this
ground.
When it comes to ss (2)(d) the founding affidavit is again lacking in essential facts. All that is stated is that the patentee was
requested to grant a licence. The founding affidavit reads - "A royalty of 6% of [appellant's] selling price was offered. If
this was agreed to, [appellant] suggested a licence agreement incorporating this royalty and including the usual provisions for such
agreements could be
drawn
I submit that this was an offer for a licence on reasonable
terms. [The patentee] refused to grant a licence on these terms."
Counsel for appellant conceded that the onus appellant bore included that of establishing as a jurisdictional fact the reasonableness
of the terms. What has been said in relation to ss (a) above is apposite here. A bald assertion does not establish facts necessary
for a legal conclusion.
Again, when regard is had to the answering affidavit, it is
13 established that Ciba enjoyed a licence which was subject to a royalty
of 6% but that this was regarded as "low" and that it was concluded
only because Ciba was to bear significant development and
registration costs which the patentee would then not itself have to
bear or recoup. In appellant's case, of course, the licensee's position
would also have to be considered in determining what would be a
reasonable royalty and the recoupment of such additional costs would
have to form a component in the computation of a royalty for any
other licensee. The patentee's denial that 6% was reasonable was thus
supported by the terms of Ciba's licence and not the contrary as
appellant asserted.
The decided cases (see for example Hoffmann-La Roche & Co
A G's Patent [1973] RPC 601 at 606) suggest that it is normal that the
calculation of an appropriate royalty at the very least involves taking
into account three elements namely (a) the patentee's expenditure on
research and development; (b) the patentee's expenditure on
14 promotion; and (c) a servicing of the capital element to allow a
reasonable return on the capital employed in (a) and (b). This will
normally call, in a case like the present, for evidence as to the practice
of companies in the field as to how current research is financed and
recouped. It is true that details of this nature are to a large extent the
confidential information of, in this case, the patentee. But that does
not mean that a bare assertion can shift a tactical onus to the patentee
to prove that 6% is not reasonable. To revert to the founding
affidavits, however, there is no reason why appellants could not have
provided facts from which conclusions (even if tentative) could be
made. Far from doing so not even the price of the product in South
Africa (or indeed elsewhere) is set out nor is there any reference to
appellant's own cost structure. Given that it was at least in a position
to manufacture, this would seem to have been a source of potentially
helpful information. In short no serious attempt has been made to
prove the essential jurisdictional facts. It follows that here too no
15 case of abuse was made out.
The court below held, in the first place, that the conclusion to
be drawn from the facts was that appellant did not want a licence to
ensure an adequate working of the patent in the Republic during the
term of the patent. This is a conclusion which would seem to me to
be one which can reasonably be drawn. I do not read the judgment to
suggest that the learned judge was unconscious of the importance of
a finding that an abuse had to be shown. I read the observation to
reflect on whether a licence can, in terms of the section, be given to
a party whose avowed objects are wholly unrelated to the purposes of
the section. In this it would seem to me that the learned judge's
approach was both logical and in accordance with the overall purpose
of the section and one to which he was driven by the facts. I,
however, prefer to place the decision on a narrower ground and I
leave open the broader considerations which seem to me to underlie
the learned judge's conclusion on this point. The learned judge also
16 held that the appellant had failed to prove that a 6% royalty was
reasonable. In this regard his conclusion is matched by my own.
What I have said renders it unnecessary to deal further with the reasoning of the court a quo. It also renders any further analysis
of the section or any more detailed discussion of the philosophy which underlies it unnecessary. Similarly it becomes unnecessary
to discuss questions relevant to the discretionary elements of the section or the role of ss (7) and (8) and problems which could
have arisen from the fact that the patent has in the interim finally expired. The applicant failed to make out a case for the grant
of a licence. The appeal must fail. The order is:
The appeal is dismissed with costs including the costs of two counsel.
C PLEWMAN JA
CONCUR:
HARMS JA) SCOTT JA) ZULMAN JA) FARLAM AJA)
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