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?