In Damorgold Pty Ltd v JAI Products Pty Ltd (No 3) [2014], the Court considered whether one of the Applicants in earlier patent infringement proceedings had standing to sue in terms of an oral exclusive licence.

The standing of an exclusive licencee to sue in Australia

In Australia, both patentees and exclusive licensees may start patent infringement proceedings in terms of Section 120 of the Patents Act 1990 (Cth). An exclusive licensee is defined as “one who has the right to exploit the patented invention throughout [Australia] to the exclusion of the patentee and all other persons.”

While the Patents Act 1990 and Patent Regulations 1991 specify that any interest, including a licence, is “prescribed information” and must be registered on the Patent Register, there are no penalties for failing to register a licence. It is the licence instrument that creates the right and not the act of registration. However, the registration of a licence provides prima facie proof of an exclusive licensee’s standing in Court, if the licensee wishes to enforce the Patent against infringers.

However, as the legislative definition of an exclusive licensee does not require the licence to be in writing, an exclusive licence may include an oral agreement which, due to its undocumented nature, cannot be registered on the Patent Register. In the event of there being an oral licence only, the exclusive licensee will have to provide evidence of that oral licence to an Australian Court in support of its ability to instigate patent infringement proceedings.

The issue between the parties

On 28 February 2014, Justice Middleton of the Australian Federal Court handed down the Decision in Damorgold Pty Ltd v JAI Products Pty Ltd [2014] that JAI Products Pty Ltd (“JAI Products”) had infringed valid Claims 23 and 27 of Australian Patent No. 760547, owned by Damorgold Pty Ltd (“Damorgold”) and allegedly exclusively licenced by Vertilux Corporation Pty Ltd (“Vertilux”).

Damorgold and Vertilux, (“the Applicants”) contended that Vertilux was an exclusive licensee in terms of a written Licence Agreement dated 9 July 2010, which recorded and confirmed the terms of an oral licence granted to Vertilux since at least 1 January 2006. The recordal of Vertilux as an exclusive licencee on the Patent Register provided prima facie proof of its standing to sue in terms of Section 120 of the Patents Act.

JAI Products argued that Vertilux was not an exclusive licensee, because a pre-existing licence had been given to another entity called “Acmeda” in or about the years 2000 to 2004, which continued to that day.

Mr. Lava, the CEO of Damorgold and Vertilux, had given evidence of the existence of an exclusive licence arrangement between the two Applicants. His evidence was that he had executed the Licence Agreement in his capacity as a Director of both Damorgold and Vertilux, and that the terms of the oral arrangements were identical to the written agreement. The evidence was that the arrangement had existed since at least 1 January 2006 and that the relevant business structure had been in place since 1996. Mr. Lava also gave evidence indicating that Acmeda’s permission to sell in Australia was nothing more than a sub-licence granted by the exclusive licensee, Vertilux.

The Court favoured his evidence and the submissions of Damorgold and Vertilux and found that Vertilux was the exclusive licensee of the Patent, and that it had the ability to start the proceedings. As far as the Court was concerned, the fact that there was no written consent given to Vertilux to sub-license Acmeda, as envisaged by the terms of the Licence Agreement, did not detract from this finding, having regard to the position and involvement of Mr. Lava as a Director of both Damorgold and Vertilux.

Take Home Message

Oral patent licence agreements remain recognised in Australia. However, in the event that the relevant Patent requires enforcement, it is worth remembering that if the exclusive licensee wishes to start patent infringement proceedings in Australia, it may be required to prove that it has standing. As such, a written exclusive licence agreement is preferable.

Furthermore, while there are no penalties for failing to register a licence on the Patent Register, it is recommended that this be done given that it has the advantage of providing prima facie proof of an exclusive licensee’s standing to sue for patent infringement. To avoid disclosure of any confidential commercial information, it is common practice in Australia to either submit a redacted copy of an exclusive Licence Agreement to IP Australia, or to submit a separate, short form of the Agreement, which confirms the existence of the exclusive Licence Agreement. This is because the information contained in any documents submitted to IP Australia is subject to the Freedom of Information Act 1982 (Cth) and may ultimately become available to third parties upon request.

Finally, it is important to note that the exclusivity of any recorded Licence Agreement may still be challenged during patent infringement proceedings and that the patentee and/or exclusive licensee could be put to proof. As such, it is generally preferable to record a separate, confirmation of the License Agreement, which clearly sets out the rights of the licensee, including its exclusivity, and the date upon which the licence commenced.