Following a spate of decisions in 2014 on patent licences, which were outlined in a previous article, the Federal Court of Australia announced two further decisions which provide additional guidance to parties to a patent licence.
Both of these decisions are a reminder that in addition to contract law, the parties to a licence of Australian patents should consider the relevant provisions of the Patents Act 1990.
Blue Gentian LLC v Product Management Group Pty Ltd
The first decision, in Blue Gentian, pertained to the question of whether a patent licence was an exclusive licence. Blue Gentian LLC joined Brand Developers Aust Pty Ltd (Brand Developers) as second applicant to the proceedings on the basis that Brand Developers was an exclusive licensee.
Product Management Group Pty Ltd (PMG) disputed that Brand Developers was an exclusive licensee because the licences did not confer all of the rights of the patentee onto the licensee to the exclusion of all including the patentee.
Following the decision of Bristol-Myers Squibb v Apotex (No 5) discussed in our earlier article, the court agreed with PMG that Brand Developers was not an exclusive licensee because the licence agreements did not confer all rights onto Brand Developers to the exclusion of Blue Gentian LLC. This is despite the fact that one of the licences used the words 'an exclusive, royalty free licence for the duration of the term of this Deed to exploit' the patents.
From the recent cases on this point, if the patentee retains any rights to exploit the patent then the licence will be considered to be non-exclusive for the purposes of the Patents Act 1990. Conversely, for clarity the licence agreement should expressly state that the grant is of an exclusive licence to exploit the patent 'to the exclusion of all including the patentee' if the intention is for the licence to be an exclusive one for the purposes of the Patents Act 1990. There is a risk that if this express language is not used then a third party could find a basis to challenge the exclusive nature of the licence and thus prevent such a licensee from being able to commence an action for infringement and/or claiming any damages which may be arisen from such an infringement.
Statutory right to terminate a patent licence
Regency Media Pty Ltd v MPEG LA LLC
The second decision is the Full Federal Court of Australia's decision on the appeal of the MPEG LA decision discussed in our earlier article. This is the first dispute regarding a party's statutory right to terminate a patent licence under section 145 of the Patents Act1990. Although the reasons are different, the Full Court also held that the right to give a notice of termination under s145 arises only when all patents that relate to a patented product cease to be in force, absent a contractual provision to the contrary.
The contract in suit was for a licence to exploit a number of different patented inventions. Each of the patents was a standard essential patent so that any party wishing to implement the standard needed a licence to each of the standard essential patents. The contract required royalties to be paid until the last patent had ceased to be in force and that it could not be terminated before 31 December 2015. The royalty provisions were amended in 2009 to reflect the expiry of some of the patents over time. Regency gave notice of termination in July 2012 relying on s145.
The Full Court considered the interpretation of the terms of s145 which provides:
Termination of contract after patent ceases to be in force (1) A contract relating to the lease of, or a licence to exploit, a patented invention may be terminated by either party, on giving 3 months' notice in writing to the other party, at any time after the patent, or all the patents, by which the invention was protected at the time the contract was made, have ceased to be in force. (2) Subsection (1) applies despite anything to the contrary in that contract or in any other contract.
The issues in dispute focussed on the meaning of 'a patented invention'. The Full Court rejected MPEG's submission that 'patented invention' should be determined by the description of the products the subject of the contract. The Full Court accepted Regency's submission that a 'patented invention' is an invention in respect of which a patent has been granted under the Patents Act 1990 and that s145 does not require a consideration of whether the claimed invention is a patentable one. In this respect, the Full Court adopted a different view from the primary judge and Regency succeeded in the appeal on that point.
The Full Court then considered a further submission from MPEG that 'a patented invention' includes the plural pursuant to the Acts Interpretation Act 1901. This involved a consideration of the commercial and policy factors from the perspective of each of the licensee and the licensor in the context where a 'product' is protected by more than one patent.
The Full Court recognised that the position submitted by Regency would entitle a patentee to terminate a licence when just one of the patents had expired and the licensee would be in a position, where having implemented a standard, it had to cease exploitation of the outstanding patents or renegotiate a fresh licence. Such a result lacked commercial reality, was potentially unfair and could lead to absurdity and uncertainty.
The Full Court agreed with the primary judge that s145 does not permit termination of a contract until all of the patents protecting the subject matter of the licence have ceased to be in force. That is, there may only be termination of the contract after all of the patents for all of the inventions the subject of the contract have expired. It was acknowledged that this construction makes commercial sense and accords with the statutory language, purpose and history of the section. The Full Court thus upheld MPEG's notice of contention.
MPEG thus succeeded in the end since Regency had unlawfully terminated the licence agreement as not all of the patents had expired as at July 2012.