Aussie rules: licensing patents down under

Entitlement

As in most major patent jurisdictions, correct legal entitlement to be granted a patent is a crucial requirement in Australia. Broadly, Section 15 of the Australia Patents Act (APA) sets out that a patent for an invention can only be granted to a ‘person’ who (a) is an inventor; (b) is entitled to have the patent assigned to them—normally under an employee/employer or contract relationship; or (c) derives title from either (a) or (b). Establishing this correct entitlement is vital, as incorrect entitlement is a ground for invalidity.

Unlike many jurisdictions, in Australia there are no specific assignment documents, declarations or oaths that need to be signed by the inventor(s), but a notice of entitlement stating the applicant’s entitlement must be lodged. In other words, for the licensee, part of its due diligence process should satisfy that the applicant (licensor) has the correct entitlement to exploit the patent.

While due diligence on entitlement should be standard practice, it is particularly important when dealing with universities and similar research bodies. In terms of Australian patent ownership, when an employee makes an invention in the course of his or her employment, the invention is owned prima facie by the employer. A recent case in an Australian university held that academics, subject to any specific contractual obligations, may still own the rights to inventions arising from their research.

Joint ownership

Following on from these broad ‘entitlement’ considerations, patent co-ownership can exist through entitlements (a), (b) or (c) above. From a licensing perspective, Section 16 of the APA provides that each co-owner is entitled to exercise the rights for his or her own benefit without the consent of the other co-owner, but a co-owner cannot grant a licence under that patent or assign it without the written consent of the others.

This approach is somewhat different in the US: a clear message is that, when obtaining a licence to a jointly-owned patent, a check is made that all co-owners have consented to the licence.

Similarly, where improvement provisions are negotiated in a patent licence, a ‘simple’ joint ownership of patented improvements may not necessarily be in the best interests of either the licensor or licensee.

In the context of joint ownership, this may often arise due to joint inventorship. Where there is more than one inventor, each inventor can only be nominated if each made a material contribution to the invention as claimed. Such contributions do not need to be equal, but they must be material. Clearly, the longer the list of inventors, the more closely the entitlement aspect should be monitored.

Enforcement

Under Section 120(1) of the APA, only the patentee/exclusive licensee has the right to bring infringement proceedings. An exclusive licensee is defined as one that has the right to exploit the patented invention in the patent area (Australia) to the exclusion of the patentee and all other persons.

"Where improvement provisions are negotiated in a patent licence, a ‘simple’ joint ownership of patented improvements may not necessarily be in the best interests of either the licensor or licensee."

Further, “exploit” is defined as “(a) where the invention is a product—make, hire, sell or otherwise dispose of the product, offer to make, sell, hire or otherwise dispose of it, use or import it, or keep it for the purpose of doing any of those things; or (b) where the invention is a method or process to do any act mentioned in paragraph (a) in respect of a product resulting from such use”.

The exclusive licensee can initiate such proceedings, but under Section 120(2) the patentee must be joined as a party to such proceedings. It is therefore important for licensor and licensee to negotiate and agree upon the relevant responsibilities, obligations, costs, etc, in the event that an action is subsequently initiated.

Such rights of the exclusive licensee can be enacted only if the exclusivity is all-embracing. If the exclusive licence does not include all exploitation acts, the field of use is restricted, or if the licensor reserves certain rights, then that exclusive licensee will not have the required standing to bring an action, and will have to rely on the licensor to enforce the patent rights. This exclusive right must be granted by the patentee, and therefore a sub-licensee will not have enforcement rights, even if such sub-licensed rights are exclusive.

Void licence terms and trade practices

Section 144 of APA provides that certain patent licence conditions may be void. Such conditions include prohibiting or restricting a licensee from using a product/process (patented or not) supplied by others than the licensor, or requiring a licensee to acquire a product not protected by the licensor’s patent. Such provisions might be considered ‘patent misuse’ provisions.

The Australian Trade Practices Act sets out various anti-competitive behaviour provisions. Section 51(3) provides an exemption from certain anti-competitive provisions as they relate to conditions and terms in patent licences. Accordingly, most patent licences will provide a limited safe harbour from most of these provisions.

However, it is prudent to avoid any issues that could give rise to contravention of the act. Typical provisions that may cause problems are where there is some form of resale price maintenance or misuse of market power, such as market sharing, territorial restrictions, tying arrangements and third-line forcing (eg, distributors) arrangements, no-challenge IP clauses, and non-compete provisions.

Summing up

In conclusion, in addition to normal assessment of licence terms and conditions, the licensee needs to undertake its due diligence with respect to entitlement and ownership, to check on whether it will have entitlement to enforce rights and whether the agreement contains anti-competitive provisions. Although the Australian patent licensing regime is relatively straightforward, it contains local nuances, and specialist local advice should be sought before finalising an agreement.

John Walker is an Australian patent and trademark attorney and principal at Dennemeyer & Associates in Australia. He can be contacted at: jwalker@dennemeyer-law.com