No gaps: The key to exclusivity

In brief

If a patent licensee wants to have standing to sue third party infringers, care needs to be taken to ensure that it has the full right to ‘exploit’ the patent. No rights can be held by other licensees, or by the patentee. Failure to deal properly with chain of title issues can be fatal to an attempt by a licensee to take legal action.

Fixing a hole

In order for a patent licensee to be an ‘exclusive licensee’ with standing to sue under the Australian Patents Act,¹ the patent licensee needs to be able to demonstrate that it has been granted the right to ‘exploit’ the patent to the exclusion of everyone else, including the patentee. For a discussion of the definition of ‘exploit’ and ‘exclusive licensee’, please see our article.²

However, many patent licensees in practice are granted exclusivity only for particular fields, or for particular rights encompassed by the term ‘exploit’ as defined under the Patents Act. Those licensees are then unable to sue infringers, even if those licensees are the only entity who suffers relevant damage.

It can be tempting to try to ‘fix’ the issue of lack of standing, by granting such a patent licensee the remainder of the full ‘exploit’ right. However, the recent Blue Gentian case³ underscores the need to take time to do due diligence on patent licences previously granted to third parties that may need to be dealt with in order to achieve the desired result of the full exclusive ‘exploit’ right being held by the particular patent licensee. Here:

• Blue Gentian LLC held the relevant Australian patent. Blue Gentian had granted an exclusive licence to National Express Inc (NEI) of particular patents (including the Australian patent) to make, or have made, use, sell, offer for sale, import, market, promote and/or distribute the Licensed Products in particular jurisdictions, including Australia.
• Consequently, Blue Gentian retained all other ‘exploit’ rights in relation to the Australian patent – including the right to hire, or otherwise dispose of of the Licensed Products, offer to hire or offer to otherwise dispose of the Licensed Products or keep the Licensed Products for the purpose of doing any of those things.
• NEI granted to Brand Developers an exclusive sub-licence in Australia of those rights, except the right to manufacture.
• Consequently, NEI retained the licence right to manufacture the Licensed Products in Australia.
• On the same day as the NEI grant of the exclusive sub-licence, Blue Gentian purported to grant to Brand Developers an exclusive licence in Australia to exploit the same patents.

The Court held that ‘there are ultimately two purported exclusive licensees, namely to NEI and Brand Developers, and that there are a number of rights not conferred in each licence’. The Court cited with approval Bristol-Myers Squibb ‘the definition of ‘exclusive licensee’ …refers to the conferral by the patentee of a single licence that precludes the patentee, and any person deriving authority from the patentee, from exercising the rights granted by the patent’.

The Court does refer without comment to French J’s comments in Uprising Dragon Ltd v Benedict Trading & Shipping Pty Ltd,⁴ that ‘although it was not necessary to decide the matter finally, the exclusion of a right of manufacture from a licence raised a question as to whether the applicant in that matter had standing to sue for infringement as an exclusive licensee’.

The Court held that Brand Developers did not have standing as an ‘exclusive licensee’ under the Patents Act. While the reasoning is brief, the danger signs are clear:

1. The Court clearly agrees that at any time there can only be one exclusive licence and that licence must preclude the patentee from exercising any of its patent rights in Australia, following Yates J’s reasoning in Bristol-Myers Squibb. Although not expressly stated, holding that Brand Developers did not have an exclusive licence may have been on the basis that the patentee can grant once and once only the exclusive right to exploit the patent. Once the patentee has granted any licence of any ‘exploit’ rights to a licensee, it is no longer possible for the patentee to grant rights to that licensee so as to result in that licensee holding all ‘exploit’ rights and being an ‘exclusive licensee’.
2. The Court also disapproved of the failure to ensure that the grant of licences were consistent with the rights held by the licensor and sub-licensor at each stage. Blue Gentian could not in fact grant the entire right to ‘exploit’ exclusively to Brand Developers at the time at which it purported to do so, because significant rights included in the right to ‘exploit’ had already been granted by Blue Gentian to NEI, and were not able to be granted to Brand Developers.
3. The Court may have been guided by the failure to deal with the chain of title for the ‘manufacture right’ in its determination that Brand Developers could not be an ‘exclusive licensee’. Although Blue Gentian purported to grant to Brand Developers the entire exclusive right to exploit the patents (including the right to manufacture) in Australia to, it could not do so because it had previously granted rights (including the right to manufacture) exclusively to NEI.

Exclusivity has to add up

The conclusion is that if you want a patent licensee to be an exclusive licensee for the purposes of the Patents Act, the entirety of the ‘exploit’ right has to be held by that patent licensee.

If there have been previous grants of licence to third parties, ideally those licences must be terminated. For more abundant caution, where an existing licence for part of the ‘exploit’ right cannot be terminated but can be sub-licensed, that licence should be amended to include the whole ‘exploit’ right before that licensee grants an exclusive sub-licence to the relevant patent licensee.

If there are ‘exploit’ rights that have never been granted to third parties, all those rights need to be exclusively granted to the relevant patent licensee, without overstating the grant to include ‘exploit’ rights that have been previously granted to the third parties.

Here, Brand Developers would have been better placed to argue that it was an ‘exclusive licensee’ if its licence from NEI included the right to manufacture, and if its licence from Blue Gentian was expressed to only include those ‘exploit’ rights that had not been granted to NEI.

This article was written by Amalia Stone, Special Counsel, Sydney.

Endnotes

1. section 120(1), Patents Act, 1990 (Cth).

2. Bristol – Myers Squibb Company v Apotex Pty Ltd (No 5)[2013] FCA 1114.

3. Blue Gentian LLC v Product Management Group Pty Ltd [2014] FCA 1331.

4. 4. (1987) 16 FCR 93.

More information For information regarding possible implications for your business, contact Amalia Stone, Special Counsel, Kristin Stammer, partner, Rebekah Gay, partner.