On 17 June 2014, the Full Federal Court heard an appeal disputing a licensee’s liability to contribute to the litigation costs incurred by the licensor in Austral Masonry (NSW) Pty Ltd v Cementech Pty Limited [2014] FCAFC 72.

Background

Cementech Pty Ltd (Cementech) and Austral Masonry (NSW) Pty Ltd (Austral) were parties to a licence agreement permitting Austral to exploit a patent owned by Cementech (Licence Agreement).  Before the term of the Licence Agreement had expired, Cementech commenced proceedings against a third party for patent infringement (Infringement Proceedings).  Clause 9.2(b) of the Licence Agreement provided that all expenses incurred by Cementech in conducting any infringement proceedings were to be borne by Austral and Cementech equally.  The main issue before the Full Federal Court was whether clause 9.2(b) survived the expiry of the Licence Agreement.

Decision Summary

Austral submitted that it could not have been the common intention of the parties that Austral continue to be liable to contribute to the costs of the Infringement Proceedings.  Austral pointed to the fact that as the Licence Agreement had expired, Austral had no right to exploit the patent and thus shared no common commercial interest with Cementech in the proceedings.

The Court rejected Austral’s arguments and found that “it must have been in the common contemplation of the parties that Cementech might commence proceedings during the term which would continue after expiry of the term.”  The practical outcome is that the contractual liability of a licensee to contribute to the costs of infringement proceedings brought by the licensor can continue past expiry of the licence.  The condition being that the proceedings are commenced duringthe term of the licence.

If you are a licensor of intellectual property and are considering a possible claim for infringement, you should consider commencing proceedings during the term of the licence.  This will allow you to take advantage of any rights to contribution from the licensee you may have under the licence agreement.