Patent licensing should be straightforward. A company owns a patent, and a third party wants permission to exploit whatever the patent covers. So the company grants the third party a licence in exchange for royalties. Simple, right?
In some rare cases, perhaps yes, it may be that simple (or almost that simple – there is still the difficulty of negotiating the appropriate royalty, terms of the license, etc, etc.) However, the problem is that this simple situation with one patent owner and one licensee negotiating one license relating to one patent is becoming increasingly rare. Nowadays, patent licensing can involve multiple licensors, multiple licensees and multiple patents (sometimes huge numbers of patents), and different patents may also be owned by different parties who may not always all be at the same negotiating table.
This can be further complicated by the fact that licenses may need to be negotiated for multiple countries/jurisdictions at once, but sometimes the patent landscape may be different in the different countries (i.e. different relevant patents, or different numbers of relevant patents, may be in force in the various different countries in question).
There was a court case in Australia recently that highlighted yet another difficulty, on top of the numerous difficulties above. The case was Regency Media Pty Ltd v MPEG LA, L.L.C. [2014] FCAFC 183. It’s not necessary to go into the full details of the case here. In fact, the following is probably an oversimplification of the facts and issues involved. Nevertheless, the brief summary below is sufficient to illustrate the point at hand.
Regency Media Pty Ltd (Regency) had entered into an agreement to license several patents from MPEG LA LLC (MPEG LA). Not surprisingly, the licence concerned patents related to the MPEG standards (a group of standards which relate to audio and video data encoding/decoding).
Australian patent law contains a provision that says
“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.”
In the MPEG case, some of the patents that were the subject of the licence agreement between Regency and MPEG LA lapsed, although others of the licensed patents remained in force. Regency tried to terminate the entire licence agreement, arguing that the above provision entitled them to do so (they actually argued that they would have been entitled to do so as soon as even one of the patents had lapsed).
However, ultimately (and to some people’s surprise), the Full Federal Court of Australia disagreed and decided that Regency was NOT entitled to terminate the licence agreement, despite the above provision. So Regency had to remain bound by the agreement and they had to continue paying royalty fees, even though some of the patents had lapsed (although it should also be noted that the licence agreement did apparently provide for royalty reductions to coincide with and accommodate progressive lapsing of patents).
Basically, Regency had to remain bound by the licence agreement, even though a number of the patents that were the subject of the agreement had lapsed, because some of the other patents that were also the subject of the agreement were still in force. This outcome may come as a surprise to many.
The thing is, the situation in the MPEG case above was actually still a pretty simple license arrangement. In comparison, the number of patents that often need to be licensed, for example, when a company wishes to produce a mobile phone handset (or something of that nature, or indeed any product which must be compliant with numerous different technical standards) is simply staggering. There may be literally tens of thousands of patents associated with numerous different technical standards that must be licensed in order for a company to be able to lawfully produce a functioning mobile phone, especially one with the latest technology. So how do we deal with the numerous challenges this throws up?
Much has been said about the interplay between competition (or anti-trust) law and patent law in this area, and the need for patent licenses to be negotiated on FRAND terms, especially where some of the negotiating parties hold very dominant positions due to the size of their patent holding. However, the issue of FRAND terms in patent licensing (whilst inescapable for those who work in the area) really just throws up even more challenges and makes the whole problem even murkier and intractable.
Perhaps a new way of thinking is required in this area. One suggestion for alleviating problems associated with need to license patents from different technical standards may be to replace the current patent pools that are associated with individual technical standards (“standard patent pools”) with patent pools relating to individual products (i.e. “product patent pools”). A product patent pool would be a patent pool that can cover a type of product rather than just the patents essential to a particular technical standard. Parties could then simply license the patents in the relevant “product patent pool” in order to produce a particular product. Obviously, this is just one suggestion, and it may well be a pipe dream. Only time will tell how this issue plays out.