Clause 1. — (Avoidance of Conditions for Maintaining Resale Prices.)

Part of Orders of the Day — Resale Prices Bill – in the House of Commons at 12:00 am on 12 May 1964.

Alert me about debates like this

Photo of Mr Edward Heath Mr Edward Heath , Bexley 12:00, 12 May 1964

I shall endeavour to give the hon. and learned Member for Walsall, North (Mr. W. Wells) the explanation for which he has asked on this question of patents. He will have it in mind that I am proposing to move some Amendments dealing with this matter later on the Report stage.

As the hon. and learned Gentleman said, the Amendment which he has moved would, in effect, exclude patented articles and articles to which a registered design is applied from the scope of Clauses 1 and 2. As I understand, he has raised this as an exploratory matter in order to have a discussion about the position. If this Amendment were adopted, it would be perfectly lawful to continue resale price maintenance in respect of these goods. The view of the Government is that there is no greater case for maintaining or preserving resale price maintenance in relation to these articles than there is in the case of any other goods. Therefore, we have drafted the Bill as it is, because we are firmly opposed to making any such exemption as the Amendment would do.

Perhaps I may explain what is the position of patented goods. The position of a registered design is broadly the same. The relationship between the patentee's monopoly and resale price maintenance arises in the following way. The patentee is entitled to prevent other people from selling the patented goods except by his licence. The courts have held that the patentee can impose conditions on the granting of licences to other persons to sell the patented goods. These conditions can include conditions as to the resale prices of the goods.

If a person knowingly sells the goods at prices lower than those fixed, the courts have held this to be an infringement of the patent. This means that the patentee can enforce resale price maintenance against retailers with whom he is in no contractual relationship. He does not need the support of Section 25 of the 1956 Act to do it. He can do it simply by virtue of his patent monopoly. That is the present position. We do not see any reason why these goods should be treated in a different way from other goods, though naturally they have the procedure of the Bill at their disposal. What is important is that the patentee does not need to impose resale price maintenance conditions in order to secure his financial reward from the exploitation of his patent.

This may have been in the minds of some hon. Members, though I think those concerned with patents have understood this very fully from the publication of the Bill. The patentee can keep his monoply and fix his own selling price, or he can license another producer to manufacture the patented articles on a royalty basis. He can get his revenue or financial income in either of these cases. This, I am told, is the most common case, and in the majority of these cases the royalty is calculated on the price at which the licensee sells his goods. It is calculated not on the retail price but on the selling price. Therefore, he does not need to have resale price maintenance in order to maintain his income. It is not a resale price. It is simply a sale price. The fixing of this price in the licence is not resale price maintenance and is not affected by the Bill.

There are some cases—I am told that they are very rare—in which the royalty is based on a resale price. I am advised that they are infrequent but may occasionally happen. This type of case can be dealt with under the Bill by relating royalty to a recommended resale price, and, therefore, if the patentee wants to maintain his income, he can do it in this way. Instead of fixing on a resale price, he fixes on a recommended price. Whether the goods are sold at that price or not does not affect the amount of revenue he gets, because he gets his revenue from the retailer fixed at that rate.