20 July 2014

Do You Have a Licence to Sue?

Patent PoliceIt is very common to establish a corporate structure including two or more entities, in which one entity holds the assets of the business, while another entity acts as the operating or trading company.  I am not a corporate lawyer or a financial advisor, so I do not propose to go into the pros and cons of such arrangements in general.  The only important point to make for the purpose of this article is that ‘assets’ generally include intangible assets, and that intangible assets include patents.

This raises the issue of authorisation: if one entity owns a patent, and a different entity exploits the patented technology, then the operating entity must be licensed by the holding entity.  It may be that the two entities are companies with common ownership and/or directorship, in which case the terms of the licence may not be set out fully (or perhaps even at all) in writing.  It is not uncommon for an operating company to carry on business without any formal written licence agreement with its related holding company, with the effect that an ongoing royalty-free licence to exploit the patent rights would usually be implied from the circumstances.

There are all sorts of reasons why this is an undesirable situation.  For example, a formal licence agreement can set out in detail what happens to the licence in the event that the operating company is sold or becomes insolvent.  An implied licence, or verbal agreement, will never be sufficiently clear to address such situations without ambiguity.

However, I am concerned here with one very specific issue that arises under the Australian Patents Act 1990Section 120 of the Act provides that ‘infringement proceedings may be started … by the patentee or an exclusive licensee.’  Thus, if the operating company is not an exclusive licensee it will not have standing to sue for infringement.  An exclusive licence is one which grants to the licensee a right to exploit the patented invention to the exclusion of all others, including the patentee.  By comparison, a licence limited to a single licensee where at least some rights are retained by the patentee is known as a sole licence, while a non-exclusive licence leaves the patentee free to grant further licences to other parties.

In the case of the holding/operating company structure, the operating company is likely to be the entity suffering damage as a result of infringing activities, and with the funds to take action.  Thus an inability to do so on its own behalf may place it at a disadvantage.

This issue arose recently in a series of decisions issued by Justice Middleton in the Federal Court of Australia, Damorgold Pty Ltd v JAI Products Pty Ltd [2014] FCA 150, Damorgold Pty Ltd v JAI Products Pty Ltd (No 2) [2014] FCA 377 and Damorgold Pty Ltd v JAI Products Pty Ltd (No 3) [2014] FCA 651.  It is the third of these judgments that relates specifically to the issue of standing.  Despite what might be described as some degree of informality in past licensing arrangements, Justice Middleton was prepared to find that Damorgold’s operating company, Vertilux Corporation Pty Ltd, had been, at all relevant times, an exclusive licensee of the patent at issue.

10 July 2014

Nominations Open for the 2014 ABA Journal Blawg 100

MedalIt is that time of year again, when the ABA Journal (‘Law News Now’) sets about building its annual list of the 100 best legal blogs (or ‘blawgs’).  This will be the eighth time the 'Blawg 100' has been compiled.

The final list is determined by ABA Journal staff and, while it is not a ‘popularity contest’, nominations are accepted in the form of ‘friend-of-the-blawg briefs’, a.k.a. the Blawg 100 Amici.

Nominations are open now, and close at 5pm US Eastern Time on 8 August 2014.

The decision to nominate a blawg is, of course, entirely personal.  But if you are a regular Patentology reader, and you find the blog interesting and useful, then I would really appreciate you putting in a good word!  Nominations can be made via the Blawg 100 Amici submission page.

Of course, if you do not want to nominate Patentology, there are many other worthy legal blogs out there.  You might, for example, want to check out last year's finalists in the IP law category:
  1. Gene Quinn's IP Watchdog (Twitter: @IPWatchdog);
  2. Kevin Noonan and Donald Zuhn's Patent Docs (Twitter: @PatentDocs);
  3. Rebecca Tushnet's 43(B)log (Twitter: @rtushnet);
  4. The Hollywood Reporter's Hollywood, Esq (Twitter: @thresq); and
  5. The Biederman Blog, written by Students at Southwestern Law School's Biederman Entertainment and Media Law Institute (Twitter: @Biedermanblog)
In 2013 IP Watchdog was inducted into the Blawg 100 Hall Of Fame while, in a shock development (to me, at least), Dennis Crouch's enormously popular and well-regarded Patently-O blog failed to make the list altogether!

You can read about all of the successful candidates in the 2013 Blawg 100 on the ABA Journal web site.

06 July 2014

Will US Alice Decision Influence the Australian Federal Court?

Alice in Oz - A Musical Comedy in Two ActsA Full Bench of the Australian Federal Court heard oral arguments in the Research Affiliates appeal (on patent-eligibility of a computer-implemented business method) all the way back on 18 November 2013.  More than seven months later, we are still waiting for a decision.

It is possible that the court was waiting for the US Supreme Court to rule in Alice v CLS Bank before finalising its opinion(s) in Research Affiliates.  Whether or not that is the reason for this long delay, the fact is that Alice has been decided, and it is therefore almost inconceivable that the judges in the Australian case would not review the US decision and assess whether there is any aspect of the reasoning that may be applicable in Australia.

So, is there?

I am sure that some will disagree with me, but I think that maybe there is – despite significant differences between the US law on patent-eligibility (based on 35 USC §101) and that of Australia (based upon the venerable test of ‘manner of manufacture’).  While the legal criteria may be different, you would have to postulate that the purpose of the patent systems in the two countries was manifestly dissimilar for the actual outcomes of applying the criteria to produce significantly different results.

The Full Court has itself said as much, in Grant v Commissioner of Patents [2006] FCAFC 120, at [24]:

While the development of US patent law is derived from the Constitution of the United States rather than the Statute of Monopolies … the policy behind the two provisions is the same. In both jurisdictions, the courts have confirmed that a broad approach to subject matter should be taken in order to adapt to new technologies and inventions but that does not mean that there are no restrictions on what is properly patentable.

So what might the Full Court take from Alice, and how might it apply the US reasoning under the Australian ‘manner of manufacture’ test?

29 June 2014

Have Your Say on Australian Innovation Policy!

Innovative ThoughtsThe Australian Science and Innovation Forum (ASIF), with the support of the Australian Academy of Technological Sciences and Engineering, is conducting the Big Innovation Survey to inform a submission to the recently announced Senate Inquiry into Australia’s Innovation System.

Terms of Reference for the Senate Inquiry include: the need to attract new investment in innovation to secure high skill, high wage jobs and industries in Australia, as well as the role of public policy in nurturing a culture of innovation and a healthy innovation ecosystem; the Australian Government’s approach to innovation, especially with respect to the funding of education and research, the allocation of investment in industries, and the maintenance of capabilities across the economy; the importance of translating research output into social and economic benefits for Australians, and mechanisms by which it can be promoted; and current policies, funding and procedures of Australia’s publicly-funded research agencies, universities, and other actors in the innovation system.

ASIF is particularly seeking responses to the Big Innovation Survey from young professionals working in the innovation economy, including:
  1. researchers in academia, Government agencies, and institutes;
  2. scientists and engineers working in private industry;
  3. science and technology entrepreneurs;
  4. legal, financial and other professionals in the scientific and high-tech industry sectors (including patent attorneys); and
  5. those aspiring to create a start-up company, or those who have already done so.
If you fall into any of the above categories and/or have an interest in contributing to the development of innovation policy in Australia, your participation in the 10-minute on-line survey will help to build a picture of both the frustrations and the successes of working in Australia’s innovation sector.  ASIF is particularly interested in your experiences at traditional institutional boundaries, and examples of best-practice, whether from Australia or overseas.  This is a chance to get voice heard and make your opinions on innovation count.

Submissions to the Senate Inquiry close on 31 July 2014.  ASIF therefore asks that you please respond by Friday 11 July 2014, to ensure your comments are included in the response to the Senate Inquiry.

Image Copyright (c) 123RF Stock Photos

ACIP’s Unworkable Innovation Patent Recommendations

ACIP Review of the Innovation Patent SystemOn 16 June 2014, the Australian Government’s Advisory Council on Intellectual Property (ACIP) released its final report following a review of Australia’s Innovation Patent System.  For any readers who do not know, the innovation patent provides a second tier protection for inventions, having a lower threshold for validity (a test of ‘innovative step’ rather than ‘inventive step’) and a shorter maximum term of protection (eight years rather than 20 years).

The report makes six recommendations, of which only three would have any substantive effect on the actual operation of the innovation patent system.  In my opinion, all three of these are unworkable, and would actually make the system worse, rather than better.  They are:
  1. to replace the current test of innovative step with a ‘higher’ standard based on the High Court’s decision in the ‘3M case’ (Minnesota Mining & Manufacturing Co v Beiersdorf (Australia) Ltd [1980] HCA 9;
  2. to require that innovation patent owners request examination/certification before the third anniversary of lodgement of their innovation patent; and
  3. to exclude from protection by an innovation patent all ‘methods’, ‘processes’ and ‘systems’.
The three non-substantive recommendations are:
  1. the non-recommendation of whether to abolish or retain the innovation patent system in its current form, due to a lack of adequate empirical evidence;
  2. that a term other than ‘patent’ should be used to denote an uncertified (and thus unexamined and unenforceable) innovation… umm… thingy (ACIP suggests ‘application’, but this would leave us with no name for the period between filing and registration); and
  3. that, subject to implementing the other recommendations, there be no change to the remedies available to a innovation patent owner in the event of infringement.
It perhaps matters little what the report says, or what recommendations it makes.  The present Australian government is wholly consumed by its conservative economic and social reform agenda, and most likely has no appetite for patent reform.  It has already attempted to bury one patents review commissioned by the previous government, and is therefore unlikely to take up the issues raised by ACIP’s report.

27 June 2014

Samsung Can Enforce FRAND-Committed Patents in Japan

Tokyo High Court BuildingIn a dispute between Apple and Samsung, the Japanese Intellectual Property High Court has ruled that damages may be awarded for infringement of a standard-essential patent (SEP) which is subject to a commitment to licence on fair, reasonable and non-discriminatory (FRAND) terms, and that this is not an abuse of the patent if the amount claimed is within the licence fee.

The following report of this recent Japanese ruling in the long-running global dispute between Apple and Samsung has been provided by Daisuke Miyamura of the Ohtsuki Patent and Trademark Law Firm, which is based in Osaka. 


A series of lawsuits regarding smart phones are being fought between Apple and Samsung all over the world.  In Japan, Apple has filed suits against Samsung four times, and Samsung has filed suits against Apple three times.  On 16 May 2014, the Grand Bench of the Intellectual Property High Court handed down its decision in one of these cases, on an appeal by Samsung against the decision of the lower court granting declaratory judgment in favour of Apple. 

Apple had originally argued that its acts, such as production, transfer and import of products did not constitute infringement of Samsung’s Japanese patent no. 4642898, and demanded declaratory judgment ruling that Samsung had no right to an award of damages based on infringement of the patent right.

The original court decision concluded that some of Apple’s products were included in the scope of the present patent.  However the original court also determined that enforcement of an award of damages based on the Samsung patent was the abuse of the right, and granted all of Apple’s requests for declaratory judgment.

Samsung appealed against the original court decision.

The Grand Bench of the Intellectual Property High Court has now ruled that enforcement of the right to damages based on the Samsung patent is an abuse of the right if the compensation exceeds the licence fee based on the FRAND obligation, but is not an abuse of the right if the compensation is within the license fee based on the FRAND obligation.

22 June 2014

Most Software Patents Will Survive US Supreme Court Ruling

Alice meets the DodoOn 19 June 2014 the US Supreme Court handed down its keenly-awaited decision in Alice Corporation Pty Ltd v CLS Bank International, ruling that Alice’s claims directed to a computer-implemented scheme for mitigating settlement risk in financial transactions are ineligible for patent protection.

The case was widely regarded as being about the patentability of software, perhaps because the question presented to the Court by Alice was ‘whether claims to computer-implemented inventions – including claims to systems and machines, processes, and items of manufacture – are directed to patent-eligible subject matter…’.

In the final reckoning, however, the Supreme Court’s unanimous opinion (authored by Justice Thomas) avoids addressing this broad question, establishing only that Alice’s claims do no more than ‘simply instruct the practitioner to implement the abstract idea of intermediated settlement on a generic computer’, which is insufficient to render the ineligible abstract idea patentable.

Based on the reasoning of the Court in Alice, claims directed to computer-implemented inventions (i.e. ‘software patent’ claims) which do more than simply apply an abstract idea, such as a financial scheme, using conventional computer hardware, are still eligible for patent protection.  The Court gave the example of claims directed ‘to improv[ing] the functioning of the computer itself or effect[ing] an improvement in any other technology or technical field’ as being distinguishable from the situation in Alice.  However, there is no suggestion that this is intended as an exhaustive category of patent-eligible software-based inventions.

Most software that performs some new and useful function, over and above the mere application of some abstract idea, therefore remains patentable in the US.

Interestingly, the Supreme Court’s decision appears to draw the US law on patent-eligibility of computer-implemented inventions closer to the approach taken in Europe, where excluded subject matter, such as business methods, are disregarded when assessing whether a claim is directed to a patentable ‘invention’.  A similar tendency can be observed in last year’s Research Affiliates decision of the Australian Federal Court (though a ruling in an appeal of that decision is currently pending), while the new New Zealand patent law, due to commence in September 2014, contains a European-style exclusion for computer programs ‘as such’.  It may well be that we are seeing a degree of international consensus emerging in relation to the patent-eligibility of computer-implemented ‘business methods’, which would be welcome.

14 June 2014

Tesla ‘Open Sources’ a Wall of Patents

Tesla Model SIn a blog post yesterday, Tesla Motors’ founder and CEO Elon Musk announced that the company had taken down a ‘wall of patents’ in the lobby of its Palo Alto headquarters, and ‘will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology.’

I have mixed feelings about this manoeuvre.  On the one hand, I am sure it is absolutely the right move for Tesla.  Elon Musk is nobody’s fool, so if he has decided that a wall of patents is delivering no value to the company as a barrier to competition, then who am I to argue?

On the other hand, I am troubled by Musk’s claiming of the ‘high ground’ in making this grand symbolic gesture (and yes, I will explain why I think it is ‘symbolic’).  His claim that Tesla is freeing its patents ‘in the spirit of the open source movement’ has had predictable results in the usual anti-patent circles: amongst others, a piece at Ars Technica asserts that ‘Tesla will use patents to subvert patent system’, while the Electronic Frontier Foundation opines that this is ‘a welcome alternative to current trends’.

What a lot of idealistic rot this is!  Tesla is a business.  It wants to succeed and make money.  More specifically, it wants to succeed in making the world’s first true mass-market electric vehicle over the next three years or so.  And to make this a reality, it also proposes to build a lithium-ion power cell ‘Gigafactory’ in order to take advantage of massive economies of scale to bring costs down.  The site for this $5bn construction project has reportedly become a political football, with Texas, Arizona, New Mexico and Nevada all vying to host the factory.

07 June 2014

Competition Law, Globalisation, Standards and Patent Pools

GlobeThe Australian government is currently conducting a review of competition policy, which was announced on 4 December 2014.  The Terms of Reference describe it as ‘an independent “root and branch” review of Australia's competition laws and policy in recognition of the fact that the Australian economy has changed markedly since the last major review of competition policy in 1993’, and are broad in scope.

An ‘Issues Paper’ was released on 14 April 2014, which states that the ‘overarching objective of this Review is to identify competition-enhancing microeconomic reforms to drive ongoing productivity growth and improvements in the living standards of all Australians’, and which poses a number of questions for public comment.  Written submissions in response to the Issues Paper are due by 10 June 2014.

Under the heading ‘Intellectual Property’, the Issues Paper states:

The underlying rationale for governments to grant intellectual property (IP) rights (such as patents, trademarks and copyrights) is that creations and ideas, once known, may otherwise be copied at little cost, leading to under-investment in intellectual goods and services.  However, providing too much protection for IP can deter competition and limit choice for consumers.

It goes on to ask the questions:

Are there restrictions arising from IP laws that have an unduly adverse impact on competition? Can the objectives of these IP laws be achieved in a manner more conducive to competition?

I am not sure that I agree completely with the characterisation of, and rationale for, IP rights as expressed in the Issues Paper, but it is certainly true that there is an inherent tension between competition law and IP laws.  This is no more true than in the case of patents, the purpose of which is to provide an exclusive right to practice a commercially valuable invention for up to 20 years.

I would argue that, for the most part, patent law and competition law have coexisted in relative harmony in Australia.  I am concerned, however, that this harmonious relationship is under threat from the globalisation of technology – and particularly technology standards – along with the associated IP.   I refer particularly to patents protecting essential aspects of standards, such as those governing widespread consumer electronics and international wireless communications networks, and the global “patent pool” arrangements that have emerged to facilitate access to those patents.  However, similar concerns are likely to arise in relation to other emerging business models involving the aggregation and licensing of patent and other IP rights.

What Materials Can I File With My Patent Application?

Burning CDIt is widely understood that the kinds of materials that may make up a patent application are quite strictly limited.  However, comments by the judge in a recent decision of the Federal Court of Australia suggest that IP Australia may be obliged to make reasonable efforts to access, review and take into account any materials filed by an applicant is support of a patent application or, at the very least, expressly advise the applicant if unable to do so.

When applying for a patent in Australia, it is necessary to file a specification comprising a description, claims and (where necessary or helpful to explain the invention) accompanying drawings.  Regulation 3.1(1) also requires that an abstract be filed.  Schedule 3 of the Patents Regulations 1991 sets out the general requirements for the format of these documents.

Beyond the basic application documents, the Patents Act 1990, the Regulations, and IP Australia’s Electronic Business Rules, appear to leave little scope for filing of additional materials to support a patent application.  It is possible to include such things as engineering designs, example program code for software-based systems, and other implementation details of prototypes or fully-functional implementations of an invention.  However, these are generally provided simply as annexures to the patent specification, in the form of text and/or drawings which are subject to the usual format rules as set out in Schedule 3 of the Regulations.

Gene sequence listings, which may be required to provide full disclosure of certain inventions in the field of biotechnology, are a special case, because of their sheer size.  They may therefore be filed electronically, as separate files structured in accordance with the standards specified in Annex C of the Administrative Instructions of the PCT.

Finally, microbiological materials that are not otherwise available, and which are necessary to put the invention disclosed in the specification into effect, must be deposited with an approved depository institution (see section 6 and section 41 of the Patents Act).