The Federal Court of Australia has ruled in favour of MPEG LA in a breach of contract case against Regency Media, finding that Regency wrongfully purported to terminate a patent licence for multiple patents by seeking to rely on section 145 of the Patents Act 1990 (Act).

The decision in MPEG LA L.L.C v Regency Media Pty Ltd [2014] FCA 180 is significant as it is the first time section 145 of the Act has been judicially considered. It also provides clarity as to termination rights available to both licensees and licensors in circumstances where the patent licence covers multiple patents.

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.

Justice Flick held that the object and purpose of the section was clear, that is to prevent the patentee from taking potentially unfair advantage of the statutory monopoly conferred by a patent after it has expired. However, Justice Flick also held that section 145 was not designed to deny the patentee of its contractual rights prior to its patents expiring.

The proceedings concerned the purported termination of a patent licence agreement (Agreement) between MPEG LA and Regency Media under which MPEG is the licensor of a number of patents defined in the Agreement as the "MPEG-2 Essential Patents" (Pool Patents). Under the Agreement, Regency was licensed to exploit all of the Pool Patents in order to make and sell products in accordance with the MPEG-2 Standard, an international standard relating to video data compression and data transport.

At the time of Regency's purported termination, seven of the 20 licensed Australian Pool Patents had expired. Regency claimed that the expiry of any one of the Australian Pool Patents provided a basis for termination under section 145 of the Act.

The key issue in this case was the meaning of the phrase "patented invention" in section 145. This phrase is not defined in the Act.

Regency argued a “patented invention” is confined an invention contained in a single patent. According to Regency's argument, an "invention" is "patented" once the application for the grant of the patent is accepted.

On this basis, Regency argued that each of the patents the subject of the Agreement constituted a separate "patented invention". The Agreement could be terminated once any of the Australian Pool Patents had expired.

The problem with Regency's construction of "patented invention" is that it ignored the words "or all the patents" in section 145. The inclusion of these words suggest that the "patented invention" could be protected by more than one patent. Regency's construction was therefore rejected by the Court.

The Court upheld MPEG LA's submission that a “patented invention" is a product or process (any manner of new manufacture) and may be the subject of more than one patent. The patented invention should be identified by reference to the contract. Upon construing the Agreement, the Court held that the Agreement related to three patented inventions, MPEG-2 Decoding Products, MPEG-2 Encoding Products and MPEG-2 Packaged Medium. These inventions are all protected by the Pool Patents.

A number of the Australian Pool Patents remained in force at the time of Regency's purported termination. The Court held that, properly construed, section 145 conferred no right upon Regency to terminate the Agreement when it did and stated that "section 145 should be construed as only permitting a party to the [Agreement] to terminate it where all of the patents in respect of each of the three 'patented inventions' … have ceased to be in force".

The Court's construction gives effect to the plain meaning of the words used in section 145 and is consistent with the purpose of the section, which is not to deprive a patentee of its contractual rights prior to its patents expiring.

As a result, parties to licences in respect of multiple patents are provided with greater certainty as to their statutory termination rights.