The Full Federal Court of Australia has unanimously confirmed that a licence to exploit multiple patents cannot be terminated by relying on section 145 of the Patents Act 1900 (Cth) (Act) until all of the licensed patents have expired. For our analysis of the earlier Federal Court decision, click here.
Regency Media Pty Ltd v MPEG LA L.L.C  FCAFC 183 is the first appellate court decision in Australia regarding section 145 of the Act and provides important clarification, for both licensees and licensors, as to when their statutory right to terminate a patent licence is enlivened.
Relevantly, section 145(1) provides:
"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".
The proceedings on appeal to the Full Court concerned a multi-patent licence agreement (Agreement) between Regency Media Pty Ltd (Regency) and MPEG LA, LLC (MPEG) pursuant to which Regency was licensed to exploit all patents required to make and sell products compliant with the MPEG-2 Standard (Pool Patents). The Agreement provided that Regency could not terminate until December 2015, however seeking to rely on section 145 of the Act, Regency purported to terminate the Agreement in mid 2012 when only seven of the twenty licenced patents had expired.
Before the Full Court, the parties submitted that critical to the construction of section 145 was the meaning of the term “patented invention”, a term undefined in the Act.
Regency submitted that a "patented invention" is an invention in respect of which a patent has been granted. As a consequence, this meant that each of the Pool Patents protected a separate patented invention and, in accordance with the express wording of section 145, its right to terminate under section 145 was enlivened when the Pool Patent protecting "a patented invention" had expired.
At first instance, the primary judge dismissed Regency's construction. Instead, it was held that a “patented invention” is patentable subject matter (i.e. a product or process - any manner of new manufacture) which is protected by one or more patents and should be identified by reference to the relevant licence. In relation to the Agreement, the primary judge held that there were three patented inventions - MPEG-2 Decoding Products, MPEG-2 Encoding Products and MPEG-2 Packaged Medium. As licences in respect of all the Pool Patents were necessary to work each of these inventions, the primary judge held that the right to terminate under section 145 did not arise until all the patents had expired.
On appeal, the Full Court disagreed with the primary judge's construction of "patented invention" and instead accepted the definition advanced by Regency that a patented invention is an invention protected by the claims of a single patent. However, the Full Court did not agree with Regency's construction of section 145 that followed.
Regency submitted that in accordance with the express wording of section 145, the right to terminate under section 145 is enlivened when the patent protecting "a patented invention" (singular) expires. Section 145 does not refer to "patented inventions" (plural) and therefore does not require that all the patents in respect of all of the "patented inventions" to which the licence relates must have expired.
In recognising the irrational and unjust results that could flow from Regency’s construction, the Full Court rejected Regency's construction and instead accepted MPEG's alternative argument - that section 145 should be read so that “a patented invention” is also read in the plural. To support that construction, MPEG relied on section 23(b) of the Acts Interpretation Act 1901 (Cth) (Interpretation Act). Relevantly, this section provides that:
"in any case, words in the singular number include the plural and words in the plural number include the singular".
Accordingly, the right to terminate under section 145 only arises when the patent, or all the patents, by which the patented invention or patented inventions were protected have expired. Applying this construction meant that Regency was not entitled to terminate the Agreement until all 20 licenced Pool Patents had expired.
Section 145 of the Act is in part intended to prevent a patentee from exploiting its statutory monopoly beyond the life of its patent(s), but is not intended to deny a patentee of its contractual rights, including as to royalties, while its patent(s) remain on foot. Section 145 was also not intended to enable a licensor of multiple patents in a single licence agreement to terminate upon the expiry of any one licensed patent, thereby causing a licensee who had tooled up and invested in manufacturing facilities to suffer loss. The Full Court's construction of section 145 acknowledges the commercial reality of multi-patent licences and gives effect to the object and purpose of section 145.