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Tuesday, April 8, 2014

Decoding your patent licence

By Adrian Chang, Lawyer

A decision earlier this month has brought light into one of the darker corners of the Patents Act 1990 (Cth).

Despite having an statutory equivalent in Australian patent law since 1952, MPEG LA, LLC v Regency Media Pty Ltd provides the first judicial consideration of section 145(1) which provides:
a contract relating to … 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.
Section 145(2) expressly prohibits contracting out of s145(1).

The background

MPEG licensed Regency the right to exploit a bundle of patents relating to three product classes:

  • MPEG-2 Decoding Products
  • MPEG-2 Encoding Products
  • MPEG-2 Packaged Media.

Under the terms of the agreement, Regency was not entitled to terminate the agreement prior to 31 December 2015.

All of the licensed patents related to each of the three product classes. From February 2009, patents under the agreement began to expire.

In July 2012, Regency purported to terminate the entire agreement relying on s145(1), at which time some but not all of the licensed patents had expired.

The arguments

Regency argued that the agreement with MPEG allowed it to exploit a bundle of inventions, each of which was represented by a discrete patent, ie:

MPEG argued that under the licence agreement there were in fact only three inventions – MPEG-2 Decoding Products, MPEG-2 Encoding Products and MPEG-2 Packaged Media – each of which was protected by all of the patents licensed under the agreement, ie:

Justice Flick favoured MPEG's interpretation, holding that s145(1) clearly contemplates that an invention can be protected by more than one patent. His Honour rejected Regency's explanation that the words 'all of the patents' was a reference to combination patents.

Accordingly, Justice Flick held that Regency's purported termination was ineffective.

Welcome guidance?

Section 145 has long been problematic for licensing practitioners – what is its exact scope and when it will be triggered? In that context, any judicial guidance is welcome.

From a practical perspective, this case suggests that in the right case the applicability of section 145(1) might be determined by careful drafting around the description of 'patented invention', notwithstanding section 145(2).

Unfortunately, the facts of this case did not lend themselves to some of the trickier issues to which section 145(1) gives rise, thus leaving many around the scope of s145 questions unanswered.

What would the outcome have been if the judge had accepted Regency's interpretation of the nature of the licence? If an agreement grants rights to multiple inventions, each of which is underpinned by a different patent (or patents), does the licensee have to wait until the last of all patents have expired to terminate 'the contract'? In this scenario, the parties need to be very careful to  ensure that the drafting reflects their intentions around the concept of 'a contract' … relating to 'a patented invention'. We expect this might be addressed by allowing for staggered termination of the particular 'contract' relating to each 'invention' as the patent relating to that particular invention expires.

Also, consider the scenario where an agreement grants the licensee rights in relation to a patented product in different territories, where the relevant patent expires at different times in different territories. Are there multiple 'contracts' for a different 'patented invention'?

Finally, it is worth noting that the decision does not address what happens in relation to any other IP rights granted under a patent licence agreement if section 145(1) has been invoked. This is important because patents are rarely licensed on their own and may often be accompanied by licences to use related know-how, copyright, confidential information etc. Will these licences also be terminated?

Let's hope we don't need to wait another 60-odd years for the next case to answer these questions.

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