The Full Federal Court of Australia has issued three important decisions regarding provisions in patent licenses. The decisions underscore the importance of paying attention to the fine detail of patent licences during their negotiation.

The first decision of the Full Federal Court confirms that a 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 real prospect and 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. Such a finding will undermine a licensee commencing an action for infringement and/or claiming any damages which may arise from such an infringement. If the licence is drafted so that the patentee withholds the right to any activities which fall within the definition of "exploit" then the licence will be considered to be non-exclusive for the purposes of the Patents Act 1990.

The second decision of the Full Federal Court provides reassurance to licensors that, absent a contractual provision to the contrary, where a multi-patent licence agreement grants rights to subject matter constituting a single invention, section 145 cannot be invoked to terminate the agreement while any of the licensed patents relating to that invention remain in force.

The third decision of the Full Federal Court serves as a reminder for patent licensors and licensees alike to think very carefully when negotiating litigation funding clauses, to ensure that a party is not obliged to fund a litigation that it does not want to proceed.

Case 1 - the definition of an 'exclusive licensee'

The question of whether a party was an 'exclusive licensee' was an important issue in the decision of Bristol-Myers Squibb Company v Apotex Pty Ltd [2015] FCAFC 2 (BMS).

In BMS, the Full Court considered whether Bristol-Myers Squibb was an 'exclusive licensee' over a patented antipsychotic agent from Otsuka Pharmaceutical, and therefore entitled to sue Apotex for infringement of the patent.

The licence agreement between Otsuka and Bristol-Myers Squibb granted extensive rights over various patents (including the patent in question), but reserved to Otsuka the right to manufacture the antipsychotic agent under one of Otsuka's patents.

The Full Court found that the word "exploit" in the Act describes the content of a right and is not intended to create separate rights in relation to each of the identified activities (eg make, sell, hire). This is consistent with the literal language of the definition of exclusive licence in the Act which refers to a patentee conferring on a licensee "the right to exploit the patented invention throughout the patent area to the exclusion of the patentee and all other persons".

Accordingly, the Full Court held that Bristol-Myers Squibb was not granted all rights to exploit the relevant patented invention to the exclusion of Otsuka and all other persons. Bristol-Myers Squibb was therefore not entitled to sue Apotex for infringement of the patent and could not recover its damages which resulted from the infringing conduct.

Case 2 - statutory right to terminate a patent licence

The Regency Media Pty Ltd v MPEG LA, L.L.C. [2014] FCAFC 183 decision relates to the first dispute regarding a party's statutory right to terminate a patent licence under section 145 of the Patents Act 1990. The decision provides reassurance to licensors that, absent a contractual provision to the contrary, where a multi-patent licence agreement grants rights to subject matter constituting a single invention, section 145 cannot be invoked to terminate the agreement while any of the licensed patents relating to that invention remain in force.

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 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.

Case 3 - litigation funding clauses

The Austral Masonry (NSW) Pty Ltd v Cementech Pty Limited [2014] FCAFC 72 decision serves as a reminder for patent licensors and licensees alike to think very carefully when negotiating litigation funding clauses, to ensure that a party is not obliged to fund a litigation that it does not want to proceed.

Unfortunately for the licensee in the Austral Masonry case, the wording of litigation funding provisions imposed an obligation which the licensee could not avoid. The licensee was obliged to fund a patent infringement proceeding that it did not want to proceed.

Austral Masonry involved a patent licence from Cementech Pty Ltd to Austral Masonry (NSW) Pty Ltd to exploit a patent for 'a matrix of masonry elements and method of manufacture thereof'. Cementech alleged that a third party, Adbri Masonry Pty Ltd, had infringed the patent.

The licence agreement between Cementech and Austral established a code in respect of the distribution as between Cementech and Austral of the costs burden and any proceeds of litigation commenced to protect the patent during the term of the licence agreement.

Cementech launched proceedings against Adbri during the term of the licence agreement with Austral, and sought a declaration from the Court that Austral was obliged to pay Cementech one half of the costs incurred by Cementech in that proceeding.

Austral denied liability to Cementech on two primary arguments:

  • first, that subclause 9.2(b) could not be enlivened as Cementech had never received an Infringement Notice from Austral; and
  • secondly, that, although Cementech launched proceedings during the term of the licence agreement, the obligation on Austral to pay the costs to Cementech could not survive the expiry of the licence agreement (which had occurred by the time of this court hearing).

Austral lost on both arguments. The Court held that:

  • subclause 9.2(b) was not conditional on an Infringement Notice being served on Cementech; and
  • it must have been in the common contemplation of the parties that Cementech might commence proceedings during the term of the licence agreement that would continue after the expiry of the term. As such, the obligation on Austral to pay a contribution towards the costs incurred by Cementech survived the expiry of the licence agreement.