A recent judgement of the English High Court decided an important new point on what amounts to an exclusive patent licence. In the case of Oxford Nanapore Technologies Limited and another (‘ONT’) against Pacific Biosciences of California Inc and another (‘PB’) of 14 December 2017 David Stone, sitting as a Deputy High Court Judge, decided that an exclusive licence could include an option to a 3rd party to secure a non-exclusive licence which could be exercised at any time and without any pre-conditions attached.

This was provided that the option had not been exercised. Whether the option had been exercised and thus the licence remained exclusive must be construed at the relevant time.

ONT sued PB for infringement of the relevant EU patent as an exclusive licensee. PB counterclaimed for revocation of the patent as invalid. However, it also sought to strike out ONT as a claimant on the basis that it was not in fact an exclusive licensee and therefore had no standing or title to raise the claim.

The rights attaching to exclusive licences are very important. They allow the licensee rights in parallel with the patent owner to sue for infringement and claim damages etc. As the sole exploiter of the patented invention the exclusive licensee is likely to suffer loss as a result of the infringement and it is key that it should be able to recoup this, by legal action if needs be. It is surprising that the issue in play here had not been specifically decided previously and that there was scope to argue this point at all.

Simply defining a licence in its terms as ‘exclusive’ does not necessarily mean it is so. As ever it will depend on the practical effect of the licence and not its form and ultimately it will be for a court to decide whether it is exclusive or not. A licence will not be exclusive if granted to more than one entity for overlapping rights even if they are parties who are in the same ultimate control. It is also perfectly possible however for an exclusive licensee to be enabled to grant sub-licences and retain its exclusivity.

PB argued that the question was whether there was ‘exclusion’ not whether there was in fact another licence actually in play. As the unnamed option holder (referred to as ‘X’) could take a right to exercise the patent rights at any time and simply upon request without any pre-conditions being fulfilled X was not ‘excluded’ and so there could be no exclusivity for ONT. ONT in contrast argued that as X had not yet exercised the option it currently had no interest in the patent. The licence was thus still exclusive to ONT at that point in time.

Here the option to X as a 3rd party was to obtain a non-exclusive licence to overlapping exploitation rights to the same patent. It had not yet been exercised but could be at any time and unconditionally. A previous case had decided that if there were conditions attached these would need to be fulfilled before what was an exclusive licence could effectively convert to a non-exclusive one. PB argued that in contrast here the ONT Licence had ‘an absolute, indefeasible licence immediately upon request’ which was different and meant the licence was already non–exclusive. The previous case was different because unlike the present situation the option could not be exercised before the relevant conditions had been fulfilled.

ONT argued quite simply that until the request was made for a licence was made by X the ONT licence remained exclusive.

David Stone agreed with ONT and took the view that even where there were no pre-conditions, as here, the exclusive licence would remain so until such time the option was exercised.

Thus this case decided that whether a licence is exclusive or not may change over time. It is not a once and for all assessment. A licence could for example allow the patentee upon certain events eg the exclusive licensee’s breach/ failure to pay minimum royalties to convert it to a non- exclusive one. What is essential is that upon grant and at the time that the purported exclusive licensee seeks to rely on its exclusive rights it is a licence to the exclusion of all others – including the patentee – to exploit the patent rights for the purposes set out.

On the whole this seems a sensible decision and provides welcome clarity on this point.

However do some unanswered questions remain? What if an exclusive licensee sues for infringement and during the course of the proceedings the licence converts as the option is exercised? Can the case be dismissed at that stage for lack of standing? Common sense would seem to dictate that it should not be as it was correctly raised in the first place but perhaps any damages award would have to be limited up to the option is exercised and any right to a permanent injunction might also fall away. Any interim injunction granted in the Licensee’s favour might also be subject to challenge.

Furthermore what happens to any sub-licences the one time exclusive licensee might have granted upon such conversion?

Perhaps party X in this case will request a licence to help answer some of these questions or will they be points for another day or days in court?