THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA

Reportable

CASE  NO: 395/2001

In the matter between:

PRECISMECA LIMITED

APPELLANT

and

MELCO MINING SUPPLIES (PTY) LIMITED                                RESPONDENT

Before:
HEFER AP, NAVSA, NUGENT JJA, JONES et LEWIS AJJA

Heard:
12 SEPTEMBER 2002

Delivered:
25 SEPTEMBER 2002

Summary:
Jurisdiction of high court in respect of common law licensing
agreement

________________________________________________________________

J U D G M E N T
________________________________________________________________

LEWIS AJA:

[1] The single issue for determination in this appeal is whether the jurisdiction
of a high court to determine the right of the appellant to a statement and
debatement of account, and payment of licence fees under a contract, is ousted
by s 18 of the Patents Act 57 of 1978. Section 18 (1) provides:

‘Save as otherwise provided in this Act, no tribunal other than the
commissioner shall have jurisdiction in the first instance to hear and
decide any proceedings, other than criminal proceedings, relating to any
matter under this Act.’

The court a quo (Mlambo J) upheld a special plea of absence of jurisdiction filed
by the respondent (‘Melco’) on the basis that the remedies sought depended on
the validity of a contract, which in turn depended on the validity of certain patents
– an issue that could be determined only by the Commissioner of Patents under
s 18(1). This appeal is brought with the leave of the High Court.

[2] In terms of the agreement in issue the appellant (‘Precismeca’) granted
Melco the right to manufacture certain items known as ‘rollers and idlers’ in return
for the payment of a royalty. Precismeca sued Melco for disclosure of the number
of items manufactured by it under the agreement, and for payment of royalties.
These claims, it contends, are based on the common law rights to claim a
statement and debatement of account and royalties in terms of the agreement.
(Precismeca had taken cession of all rights under the agreement between Melco
and the cedent, an associated company, prior to the institution of the action.) The
agreement, concluded in 1975,  required Melco to account on a half-yearly basis

for payments due under it, in respect of every ‘idler and roller’ of the product
manufactured and sold by Melco, as licensee. The ‘product’ is defined in the
agreement as ‘roller and idler set design and technology, such as they are
manufactured by Precismeca’.

[3] The preamble to the agreement explained that Precismeca had applied for
registration of the trademark ‘Precismeca’ in relation to the product; wished to
grant to Melco an exclusive right to manufacture the product within specified
areas (the ‘territory’) ‘in accordance with the Patents applied for’ and to sell the
product under the name Precismeca. Melco undertook to make payments to
Precismeca in respect of the manufacturing and sales of the product in
accordance with the provisions of the agreement. Clause 3.3 provided that on the
execution of the agreement Precismeca would grant ‘an exclusive Licence to
manufacture, use and sell the Product in accordance with the  . . . secret
knowledge and secret formula the subject of the Patents applied for and the
Trade Mark ‘Precismeca’  in the Territory’. Clause 3.4 imposed an obligation on
Precismeca to apply ‘diligently’ for the registration of the patents and the Trade
Mark, and, if granted, to license Melco under the patents, and to enter into a user
agreement in respect of the registered Trade Mark. Clause 3.5 provided inter alia
that until the licences were granted and the user agreement registered, the
licensing agreement itself would operate as a ‘licence in respect of the patents
applied [for]’. I shall examine this provision more closely later in the judgment

since in my view it is decisive of the dispute as to the nature of the contract in
issue.

[4] It is common cause that no licences in respect of patents that were to be
applied for were ever granted and that the trade mark user agreement was not
concluded. The licensing agreement, Precismeca thus argued, accordingly took
effect as a licence itself in respect of the product manufactured, and retained that
status.

[5] It is also common cause that the patents referred to in the agreement by
reference to the schedule (as opposed to those still to be applied for) had expired
at the time of action, two before the conclusion of the agreement and one
thereafter. It was accordingly argued for Melco that the litigation in the court a
quo constituted a dispute between the parties as to their rights ‘to make, use,
exercise or dispose of an invention’ as contemplated by s 28(1) of the Patents
Act, which should have been referred to the commissioner of patents to
determine. And it was on this basis that the court of first instance upheld the
special plea as to jurisdiction. The issue was characterized by the court as an
enquiry into patents and their effect on a licensing agreement when they lapse.

[6] Melco contended on appeal that because there were no patent
applications pending at the time of the conclusion of the contract, the agreement
was void for vagueness. (It should be noted that the patents supposedly extant

were said to be listed in a schedule attached to the agreement, but that no such
list was in fact attached, at least when the agreement was signed for Melco.) And
the question whether any patent application was in fact pending, Melco argued,
is a matter that can be determined only by the commissioner in terms of  s 18(1)
of the Act. That question is, however, not before us.

[7] Melco submitted further that even the liability to account  and pay royalties
to Precismeca in respect of the product manufactured is dependent on  the
licence in respect of the patents applied for (defined in the agreement as ‘the
Patents when granted relating to the Product in respect of which applications are
at present pending . . .’.  It should thus be determined, the argument continued,
whether the product Melco has manufactured is one that has used the patents
applied for. Again, it was argued, the determination of that question is one that
falls within the exclusive jurisdiction of the commissioner of patents.

[8] Precismeca, on the other hand, argues that it claims relief under the
common law and not in terms of the Patents Act. The claims for payment of
royalties and for an accounting are remedies that the common law provides and
that the ordinary courts have jurisdiction to entertain. Even if a patent is in issue,
in an incidental though perhaps essential respect in the determination of the
dispute, Precismeca submits, where the relief sought is not statutorily based, a
high court will have jurisdiction.

[9] Precismeca claims support for these contentions from the decisions in
Buckingham v Doyle & others 1961 (3) SA 384 (T) and Helios Ltd v Letraset
Graphic Art Products (Pty) Ltd 1973 (4) SA 81 (T). In Buckingham Cillie J,
dealing with the predecessor to s 18(1) (s 77(1) of the Patents Act 37 of 1952,
which was in substantially the same terms as s 18(1)), in ruling on a point taken
in limine in an action for the settlement of a dispute by partners in connection
with the partnership, held that although the partnership ‘has as its basis the joint
ownership of a patent’, the court had jurisdiction to hear the matter. The action
was not one, the court held, where it would be asked to decide on the ownership
of the patent, or on the parties’ respective rights in it. The court held also that the
person alleging that it has no jurisdiction must show that the action contemplated
‘falls under the provisions of the [Patents] Act and has been allocated to the
jurisdiction of the Commissioner’s court’.

[10] In Helios Ltd the court was asked to interdict the respondent from
publishing a circular letter that purported to explain a decision of the Appellate
Division relating to a patent infringement. It was argued for the respondent that
the determination of the application involved a decision on the validity of the
patent itself, and therefore fell within the jurisdiction of the Commissioner.
Rejecting the argument, Margo J said that what was being sought was relief
afforded by the common law for an injurious falsehood (the letter being
inaccurate about the findings of this Court), which the court was competent to
grant. Margo J approved the decision in Buckingham, saying that ‘[s]ec. 77(1)

was obviously not intended to subsume all possible forms of relief, common law
or otherwise’ (at 87C—D).

[11] Melco, in contending that the payment of the royalties and the right to
claim an accounting, is indeed dependent on the validity of the patents and of the
agreement, has in turn relied upon Maxicorp Holdings (Pty) Ltd & others v
Pearman & others 1997 BIP 256, in which Heher J found that the relief claimed
by way of an amendment to an application could not be granted because that
which was sued for initially fell within the exclusive jurisdiction of the
commissioner. The court considered that ‘the determining factor’ was that
whatever patent rights the applicants laid claim to originated in and were ‘solely
dependent upon’ the validity of an agreement of sale, the purpose of which was
to provide for the disposal of the respondents’ patent and trademark interests,
and for a consideration. At issue were the rights of the applicants to the patents,
and that fell within the exclusive jurisdiction of the commissioner. Heher J
considered that Buckingham and  Helios Ltd were accordingly of no assistance to
him. (See also the unreported judgment of Spoelstra J in Flexitainer International
(Pty) Ltd v Flexitainer SA (Pty) Ltd & another, unreported, case 32503/00
Pretoria High Court, 25 May 2001.)

[12] It is not necessary to consider the correctness of these apparently
different approaches in  light of the view I take in this matter. The jurisdiction of
the high court is excluded only where the proceedings relate to ‘any matters’

under the Patents Act. Whatever the limits of this phrase might be, the claim in
the present case clearly falls outside its terms.

[13] The agreement, properly construed, is not a licensing agreement in terms
of the Patents Act: it is not a contract to make a patented article or to use a
patented process. The agreement is a common law licensing agreement and the
reference to the patents does no more than describe the product. The fact that
the list of patents was not attached shows that it was not intended to be a patent
licensing agreement.  Moreover, although two of the patents had  lapsed before
the agreement was concluded, and the third shortly thereafter, the parties in fact
performed in terms of it for a period exceeding 20 years. And the initial period of
the agreement was to be 10 years, renewable for further periods of five years at
a time, without limitation. It could thus endure for an indefinite period, whereas
the life of a patent is limited. A number of other features of the agreement were
also argued to be indicia that a patent licensing agreement  was not intended. In
my view, these obligations are not patent-related, but are exigible in return for the
payment of licence fees in terms of the agreement.

[14] The decisive provision, however, is clause 3.5 of the agreement. It reads:
‘The exclusive Licence hereinbefore referred to and the Licence under the
Patents applied for and the registered User Agreement shall be in the
standard form and shall be subject to the terms and conditions contained
in this Agreement and until such Licences and registered User Agreement
are granted this Agreement shall take effect as a Licence in respect of the
Patents applied [for].’

The clause contemplates three different licences: the technology licensing
agreement  - that which is referred to as the exclusive licence; the licence under
the patents applied for; and the registered user agreement. In my view, since it is
clear that patents were not granted (although there is apparently a dispute as to
whether they were ever applied for), and that a user agreement was never
concluded, the agreement can be no more than a technology licensing
agreement, for the manufacture of the products described with reference to
patents previously in existence, enforceable under the common law.

[15] Accordingly, the rights under the agreement for an accounting and for
payment of royalties arise at common law and the high court has jurisdiction to
enforce them.

[16] The appeal succeeds with costs, including those of two counsel. The order
of the high court upholding the respondent’s special plea is set aside.

__________________________

C H LEWIS

ACTING JUDGE OF APPEAL

HEFER AP )
NAVSA JA
)
NUGENT JA )
CONCUR
JONES AJA )