Recent Federal Court Decision Confirming the Current State of Play for Exclusive Licences Under the Patents Act 1990 (Cth)

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Introduction

When a patent is infringed, it is frequently a licensee rather than the patentee that suffers direct losses as a result of the infringer’s acts. However, standing to sue for infringement under the Patents Act 1990 (Cth) is confined to the patentee and the “exclusive licensee”. For the purpose of the Patents Act 1990, an exclusive licensee is:

a licensee under a licence granted by the patentee and conferring on the licensee, or on the licensee and persons authorised by the licensee, the right to exploit the patented invention throughout the patent area to the exclusion of the patentee and all other persons.

Determining the requirements of an exclusive licence has not been without difficulty and some of these requirements were considered in the recent decision of Vald Performance Pty Ltd v Kangatech Pty Ltd [2019] FCA 1880.

Background to the dispute

Vald Performance Pty Ltd (Vald Performance) commenced proceedings against Kangatech Pty Ltd (Kangatech) in which it alleged, amongst other things, that it had standing to sue as an “exclusive licensee” pursuant to two agreements being:

  • licence dated 16 December 2014 from the patentee, the Queensland University of Technology (QUT) to QUTbluebox Pty Ltd (QUTBB); and
  • licence dated 19 December 2014 between QUTBB and Vald Performance.

Kangatech asserted that Vald Performance was not an exclusive licensee because:

  • it did not have a licence granted by QUT (the patentee);
  • the licence did not include the right to import (which is included in the definition of “exploit” under the Patents Act 1990); and
  • the licence reserved certain rights to QUTBB being the right to use the patent for research and to sublicence the patent.

Following the filing of the defence, Vald Performance obtained an assignment of the patent, with the result that it would prosecute the proceedings as the patentee, with consequential amendment of the pleadings. Nonetheless, Vald Performance maintained its position that prior to the amendment it had been an exclusive licensee. Justice Greenwood considered this question for the purpose of determining costs in the context of the amended statement of claim.

Decision as to costs

Kangatech argued that it should have its costs of the entire proceeding up until the date of the hearing before Justice Greenwood on an indemnity basis because Vald Performance did not have standing to bring the proceedings. Vald Performance argued that it should only pay for costs thrown away by reason of the amendment of the statement of claim.

In considering the licences, Justice Greenwood noted that there were a number of rights that Vald Performance did not have under its licence. Referring to Actavis Pty Ltd v Orion Corporation [2016] FCAFC 121 his Honour reinforced the importance of the requirement under the Patents Act 1990 that an “exclusive licence” must exclude the patentee and all other persons. His Honour did not accept that Vald Performance had had an exclusive licence for two reasons, the first being that, applying Actavis, the grant of the license was not directly from the licensee, and the second was that there were reservations in the licence that operated as a derogation from the exclusivity of the grant. On that basis, Vald Performance had no standing to bring the proceedings prior to obtaining an assignment of the patent.

Ultimately, because the proceedings were reconstituted with Vald Performance as the patentee, some of the costs going to infringement and other matters were not lost or thrown away. Vald Performance was ordered to pay the costs of Kangatech that were thrown away by reason of the amendment on an indemnity basis.

Discussion

In Vald Performance Pty Ltd v Kangatech Pty Ltd [2019] FCA 1880, Vald Performance was able to “fix” its problem with standing with the result that the proceedings could continue. The costs associated with the period during which it had no standing were confined (even if awarded on an indemnity basis). The costs consequences would be more significant in cases where the licensee is unable to correct the problem of standing, for example, where the patentee is unwilling or unable to give an exclusive licence or an assignment of the patent and the patentee was not prepared to prosecute the proceedings. In that event, the proceedings would be unable to continue and the entirety of the costs involved would be thrown away. If an interlocutory injunction had been granted, then there would potentially also be compensation owed pursuant to the usual undertaking as to damages.

Accordingly, if a licensee is to participate in patent infringement proceedings, it is important to ensure that its licence is an “exclusive licence” within the meaning of the Patents Act 1990 when the proceedings are commenced. In light of Vald Performance Pty Ltd v Kangatech Pty Ltd [2019] FCA 1880, it is possible to summarise the following key features of exclusive licences:

  1. A licensee alleging standing to sue for patent infringement should be in a position to demonstrate that it has an exclusive licence within the meaning of the Patents Act 1990, and preferably should have that licence recorded on the Register of Patents prior to commencing proceedings (ss 187 and 195 of the Patents Act 1990).
  2. A licence will not be an exclusive licence if there is any “reservation of rights”. However, in Actavis Pty Ltd v Orion Corporation [2016] FCAFC 121 it was accepted that an exclusive licence, with all the rights to the patent granted with it, where there was also a licence back of some of the rights, could still retain its character as an exclusive licence.
  3. An exclusive licence must confer the right to exploit the patented invention. “Exploit” in the Patents Act 1990 is defined in the following terms:

    …in relation to an invention, includes: 
    1. where the invention is a product–make, hire, sell or otherwise dispose of the product, offer to make, sell, hire or otherwise dispose of it, use or import it, or keep it for the purpose of doing any of those things; or 
    2. where the invention is a method or process–use the method or process or do any act mentioned in paragraph (a) in respect of a product resulting from such use.
  4. An exclusive licence must give the licensee the exclusive right to carry out any and all of the acts set out in the definition of “exploit” (noting that definition is inclusive and not exhaustive). The right to exploit is a single indivisible right (see Bristol-Myers Squibb Company v Apotex Pty Ltd [2015] FCAFC 2).

    The wording of an exclusive licence should ideally reflect the wording of the Patents Act 1990, rather than adopting different terms to avoid the risk that in using different words, something less than an exclusive licence is given. This is necessary for an exclusive licence, even if the parties do not contemplate that the licensee will want or need to carry out certain acts of exploitation (manufacturing for example, may be excluded because manufacturing does not take place in Australia).

  5. An exclusive licence should be granted by the patentee.
  6. The enforcement provision of a patent licence should be considered in light of the above mentioned decisions.
  7. The above specifically relates to standing to sue for enforcement of patents in Australia. The position as to other forms of intellectual property including copyright, designs and trade marks will depend on their respective legislative regimes.

Please contact us if you have any questions on this development.

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