A recent decision of the Federal Court of Australia has provided guidance on the scope of the termination right in section 145 of the Patents Act 1990.
The Court held that a licensee of Australian patents will only be able to terminate under section 145 where all of the Australian patents in respect of a ‘patented invention’ have expired.
The decision does not provide guidance as to how a court would apply section 145 where the licensed patents are not for the same patented invention, or where multiple jurisdictions are involved.
This will be welcome news for patent licensors looking to licence Australian patent pools with a range of expiry dates.
All or nothing
A recent decision of the Federal Court of Australia has provided guidance on the scope of the termination right in section 145 of the Patents Act 1990 (Cth) (the Act). The Court held that a licensee of Australian patents can only terminate under section 145 where all the Australian patents in respect of a ‘patented invention’ have expired.
The decision in MPEG LA, L.L.C. v Regency Media Pty Ltd  FCA 180 is the first time section 145 has been judicially considered, despite having a previous counterpart in the Patents Act 1909. The Court held that although one of the purposes of the section is to prevent an Australian patentee from taking unfair advantage of the statutory monopoly after the expiry of an Australian patent, it was not intended, and should not be used, to limit the patentee’s rights before expiry.
MPEG is the licensor of a patent pool covering essential patents required to use or implement the MPEG-2 Standard. Regency was granted a Patent Portfolio Licence Agreement (PPL Agreement) in respect of this patent pool at royalty rates that decreased as the patents started to expire. The PPL Agreement provided that Regency could not terminate the licence prior to 31 December 2015.
On 5 July 2012, Regency purported to terminate the PPL Agreement under section 145 on the basis that seven of the Australian patents covered by the PPL Agreement had expired. MPEG disputed Regency’s ability to rely upon section 145 to terminate.
Section 145 of the Act 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 an invention was protected at the time the contract was made, have ceased to be in force.
- Subsection (1) applies despite anything contrary in the contract or in any other contract.
The key issue in dispute was the construction of the term ‘patented invention’, a term not defined in the Act.
Regency argued that as an ‘invention’ is ‘patented’ once the application for a grant of patent is successful, each patent corresponds to a single ‘patented invention’. Under this interpretation, Regency would have a right to terminate the PPL Agreement in its entirety under section 145 once any of the licensed Australian patents ceased to be in force, whether through expiry or otherwise.
MPEG contended that the term ‘patented invention’ referred to the invention as a whole, aspects of which could be protected by separate patents, here three Australian patents covering aspects or embodiments of the MPEG-2 invention: MPEG-2 Decoding Products, MGEG-2 Encoding Products and MPEG-2 Packaged Medium. Under this interpretation, section 145 could only be invoked to terminate the PPL Agreement once all of the Australian patents referable to that invention had ceased to be in force.
The Court noted that both approaches had merit and found support in the Act. However, two elements were influential:
- the wording of section 145 provides for the possibility that there might be more than one patent per invention, and
- a ‘patented invention’ can be any manner of new manufacture, which may be protected by more than one patent. The Court accepted that each of the three inventions claimed by MPEG were new manners of manufacture supported by various patents.
The parties’ commercial agreement
The Court commented that section 145 is intended to prevent patent holders from artificially extending their monopoly beyond the patent expiry date. However, the Court was hesitant to interpret the section in a way that would deny a patentee the benefit of licence royalties for patents which had not yet expired.
The Court preferred a construction of section 145 that gave effect to the commercial agreement between the parties, and preserved the patentee’s right to royalty payments for the Australian patents remaining in force.
Future impact on licensing
Termination under section 145 is only available when all Australian patents encompassed by the ‘patented invention’ have expired .What constitutes a particular ‘patented invention’ in the circumstances will depend upon how the invention is defined in the agreement.
MPEG v Regency suggests that the termination right in section 145(1) might be limited by careful drafting, non-withstanding section 145(2) – for instance, defining an invention being licensed with reference to more than one Australian patent (provided that such invention actually falls within the scope of each of those patents).
However, this decision does not provide guidance in relation to how a court would apply section 145 where more than one Australian patent family is being licensed, or multiple jurisdictions are involved. Prudence may still require drafting that seeks to characterise the licences of each such patent family, or each jurisdiction, as forming a separate contract.
Licensees should also consider seeking tiered or decreasing royalty payments to take account of any payment for patents that may have ceased but are part of a subsisting ‘patented invention’.
This case was a win for patent pooling. Parties will continue to be bound by their commercial agreement, and will not be permitted to terminate a licence upon the expiry of a single Australian patent where that patent relates to an invention also covered by patents that continue to be in force. Termination under section 145 arises either when all of the Australian patents in relation to an invention have expired, or not at all.