01 February 2015

Licensee Wins, But Loses, Termination Appeal

Crying stick figureA full bench of three judges of the Federal Court of Australia has ruled that the Australian Patents Act 1990 does not authorise the termination of a licence covering multiple patents in circumstances where some, but not all, of the patents have ceased to be in force (Regency Media Pty Ltd v MPEG LA L.L.C [2014] FCAFC 183).

The decision is important because it would appear to settle the interpretation of a provision, in section 145 of the Patents Act, that has long been regarded as potentially ambiguous.  In over a century, however, this provision, and its precursors in the Australian and UK patent laws, has not been closely examined with a view to resolving this potential ambiguity.

In the interests of full disclosure, I should point out that Regency Media (the licensee, and appellant, in this case) has been a Watermark client for a number of years.  I have personally worked closely with them, and Watermark Intellectual Property Lawyers represented Regency in the appeal.  This post will therefore focus on the legal reasoning of the Full Court.  The judgment itself summarises the factual background, should you wish to read more.  I published a similarly dry summary of the original decision of a single judge of the court, back in March last year.

Interestingly (or frustratingly, depending upon your point of view) this was a case in which the appeal court ruled that the judge at first instance had got it wrong.  As the Full Court stated, at [18], ‘Regency succeeds in the appeal.’  However, MPEG LA went on to succeed based on an argument first raised in an amended notice of contention filed in the appeal.  It is thus notable that the period within which Regency could have applied for special leave to appeal the Full Court’s decision to the High Court of Australia has expired, and no application has been filed.

Statutory Provision

Section 145 of the Patents Act provides that:

(1) 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.

(2) Subsection (1) applies despite anything to the contrary in that contract or in any other contract.

In other words, section 145 is a statutory exception to the general rule of ‘freedom of contract’, i.e. that contracts are based on mutual agreement and free choice, and should not (usually) be hampered by external control such as governmental interference.  I discussed why such an exception might be created in the case of patent licences in my report on the first instance decision, and will not repeat myself here.

‘A Patented Invention’

Initially, the main point of difference between the parties was over the interpretation of the the words ‘a patented invention’.  This was also where the Full Court departed from the reasoning of the original judge.

At first instance, the judge ruled (in line with MPEG’s submissions) that a ‘patented invention’ is any patent-eligible subject matter (e.g. product or process) which is protected by one or more patents, and which can be identified by reference to the relevant licence.  This would mean that parties are free to define ‘patented invention’ in a contract, independently of the meaning of the term within the boundaries of the Patents Act.

On appeal, the Full Court found that this is wrong, deciding (in line with Regency’s submissions) that a patented invention, consistently with the way in which the terms are used throughout the Patents Act, is an invention as defined in a claim of a patent.

On the plain language of section 145, then, it would seem that ‘a contract relating to … a licence to exploit a patented invention may be terminated … at any time after the patent … by which the invention was protected at the time the contract was made [has] ceased to be in force.’  Where there are multiple patented inventions, by virtue of there being multiple patents licenced under the related contract, it might therefore be the case that the expiry of a single patent would enable the contract to be terminated.

Singular Includes the Plural…

The eleventh-hour argument raised by MPEG LA was based on application of the Acts Interpretation Act 1901 (‘AIA’), which describes itself as ‘like a dictionary and manual to use when reading and interpreting Commonwealth Acts and instruments made under Commonwealth Acts.’  Section 2 of the AIA establishes that the Act applies to the interpretation of any other Act, unless the contrary intention appears.  Section 23(b) states that ‘words in the singular number include the plural and words in the plural number include the singular.’

So, in the absence of an apparent ‘contrary intention’, the term ‘patented invention’ in section 145 of the Patents Act should be read as encompassing its plural, i.e. ‘patented inventions’.

Naturally, Regency argued that there is a contrary intention apparent in section 145, not least because the section is at pains to expressly cover both singular and plural forms in relation to ‘the patent, or all the patents’, but does not do so in relation to ‘a patented invention’ or ‘the invention’.

All that really needs to be said about that, however, is that the Full Court disagreed.

Conclusion – At Least We Have Certainty

While this is obviously not the outcome that Regency (or I) was hoping for, it is a better result for the community at large than the original decision, which held that the operation of section 145 could be dependent, on a case-by-case basis, on the way in which a contract or licence agreement is drafted.  This clearly provides no certainty at all, and could be problematic for numerous existing contracts prepared prior to the decision.

At least everyone now knows that a contract/licence encompassing multiple patents cannot be terminated under section 145 until all of the patents have expired, regardless of the wording used in the contract.

They say ‘you win some, you lose some.’  And sometimes you do both…


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