This article discusses the Australian position. However, comparable provisions exist in a number of other jurisdictions.
A TRAGIC TALE?
Imagine that you are in the business of manufacturing and selling widgets. You have a major competitor with an improved widget that is proving very popular in the market. You would like to make your own version of the improved widget, but you are prevented from doing so because your competitor has a patent on the improvements.
Sensibly, you have instigated a watch on your competitor's patent. One day, your watching service provider reports to you that your competitor has failed to pay the annual renewal fee for its patent, which has therefore lapsed.
The renewal fee is now nearly a year overdue and so, feeling confident in your position, you invest significant resources in retooling your widget production line to produce the improved widgets. You also stop the watching service.
Then, unexpectedly, you receive a letter from your competitor's patent attorneys informing you that you are infringing their patent, and that if you do not cease and desist they will commence legal proceedings against you.
How could this have happened? Upon further investigation you discover that your competitor applied for, and received, an extension of time of more than one year to pay its renewal fee, which had been missed inadvertently due to a clerical error. The fee has now been paid, the patent reinstated, and you have missed the opportunity to oppose the extension request.
But you have acted in good faith. You respected your competitor's IP rights, and you would never have started manufacturing the improved widgets while the patent was in force. Surely there must be something you can do?
There is something you can do – you can apply to the Commissioner of Patents for a licence to continue to exploit the invention claimed in your competitor's patent.
APPLYING FOR A LICENCE
General extensions of time are governed by section 223 of the Patents Act 1990. The Australian extension provisions are relatively permissive, and may generally be invoked to enable the correction of genuinely unintentional errors or omissions. When an applicant or patentee misses a deadline for an action, such as paying a renewal fee, that ultimately results in the application or patent lapsing, this is not necessarily an impediment to revival via an extension request, so long as all of the relevant requirements are satisfied.
If the Patent Office proposes to grant a request for an extension of time, it must typically be advertised (except for some extensions of less than three months) in the Official Journal, and is subject to opposition by third parties. If there is no opposition (or any opposition is unsuccessful) then the extension will be granted and, if necessary, the patent restored.
However, subsection 223(9), along with Regulation 22.21 of the Patents Regulations 1991, provides for intervening rights to be granted, in the form of a licence, by the Commissioner of Patents. In particular, if a person satisfies the following requirements, they may be entitled to the grant of a licence:
- they must have exploited the patented invention, or have taken definite steps (by way of contract or otherwise) to do so;
- this activity must have commenced before the extension application was advertised; and
- the activity must have occurred as a result of the patentee's failure to do the relevant act (eg failure to pay a renewal fee, resulting in lapsing of the patent), which necessarily requires that the activity did not commence prior to the lapsing of the patent.
If the Commissioner is ultimately satisfied that the grant of a licence is appropriate, the licence must be granted on such terms as the Commissioner considers reasonable.
NATURE AND SCOPE OF LICENCE
The basis for the grant of a licence by the Commissioner was considered by the Patent Office in HRC Project Design Pty Ltd v Orford Pty Ltd  APO 12.
The Commissioner's Delegate considering the HRC case concluded that the licence for which the Act and Regulations provide is not between the patent owner and the third party. Specifically:
...the application for a licence under Reg 22.21 is an application as between the third party and the Commissioner. It is an application to the Commissioner for the grant of a right. The right the subject of the licence does not belong to the patentee, because of the restoration. An application for a licence is not an application to adjudicate a licence as between the parties.As such, it is not a licence of the normal kind, in which the patent owner confers some or all of its exclusive rights upon a licensee in exchange for consideration, such as royalties. The Delegate found, in particular:
- Where a patent ceases, the restoration under section 223 is not a full restoration of the rights of the patentee. Rather [by reason of s.223(9)] it is a restoration of patent rights other than those rights accrued by third parties who have exploited (etc) the invention during its period of cessation, whether or not those rights are known to the patentee or Commissioner at the time of restoration;
One consequence of this is that the patentee cannot claim royalties or other compensation from the third party. The rights accruing to the third party no longer "belong" to the patentee, and therefore cannot be exploited. The specific right lost by the patentee is that of enforcing the patent against the third party in respect of the conduct commenced while the patent was not in force.
- s.223(9) and reg 22.11 is a mechanism whereby the Commissioner formally grants rights to third parties to use an invention, those rights having been (in effect) reserved upon restoration. The grant of those rights is by way of licence - that is, the grant of a right to exploit an invention with immunity from infringement under the relevant patent. Clearly those rights are not monopoly rights that can be exercised against other parties (as in the grant of a patent), but nevertheless the licence is the grant of a right by the Commissioner.
There are a few salient points to be taken from all of this.
- A party that allows a patent or application to lapse may, in appropriate circumstances, be able to restore rights by way of an application for an extension of time.
- However, limited rights to exploit the invention may accrue to third parties during the intervening period, whether or not the patent owner is aware of them.
- A patentee should therefore be aware that the rights restored may not be the full rights originally held.
- Since rights no longer owned cannot be licenced, a patentee has no grounds to obtain compensation from a third party that has accrued intervening rights. In an extreme case, the third party could be the patentee's sole major competitor, in which case the patent may become effectively worthless, even though it remains enforceable against all other parties.
- On the other hand, the third party rights are also heavily circumscribed. Only conduct initiated as a result of the patent lapsing, and commenced during the period of lapsing, is protected. The third party cannot, for exampe, freely exploit the invention in new products or services developed after the patent has been restored.