When a patent is infringed, one of the common remedies that are available include the payment of damages that have been sustained. Damages can only be sustained where parties are actually trading in the patented invention. If the patentee is not trading in the invention itself, and licenses another party to commercialise the invention, then the licensor will not be suffering damages directly except for the license royalties lost.
However, the licensee of the patent does not have the standing to commence proceedings against an infringer in its own name unless it is an “exclusive licensee” within the definition of the Patents Act 1990. A recent case has illustrated why it is important to get an IP solicitor with up to date knowledge of the law and the Patents Act involved in drafting of licensing agreements as soon as possible.
Background of the case
In a recent decision in the Federal Court – Vald Performance v Kangatech  FCA1880 – Vald Performance initiated proceedings as an exclusive licensee of a patent belonging to the Queensland University of Technology (“QUT”). Vald asserted that QUT had granted an exclusive licence to QUTBluebox Pty Ltd (“QUTBB”), and in turn QUTBB had granted an exclusive licence to Vald Performance. The licence had not been recorded with IP Australia.
Kangatech contended that the licence granted to Vald Performance was not an exclusive one, within the meaning of the Patents Act, and that Vald Performance had no standing to commence proceedings. The Patents Act defines an exclusive licensee as being “a licensee under a licence granted by the patentee and conferring on the licensee, or on the licensee and persons authorised by the licensee, the right to exploit the patented invention throughout the patent area to the exclusion of the patentee and all other persons”.
Kangatech argued that the licence to Vald Performance had not been granted “by the patentee” and that certain rights were held back. For example, Vald Performance did not have the right to grant sub-licenses to other parties, and QUTBB reserved the right to use the intellectual property for research, development and education, with the right to grant a sub‑licence to the QUT on the same terms and with the right in the QUT to grant sub‑licences to its research collaborators.
Vald Performance eventually had ownership of the patent assigned to itself, giving it clear rights to commence proceedings as the patentee, and amended the pleadings. However, it maintained its position that it had always been an exclusive licensee.
Kangatech argued that all costs up until Vald Performance had become the patentee should be paid for on an indemnity basis. Vald Performance argued that they should bear only the costs thrown away by reason of the amended originating application and the amended statement of claim, including the costs of the case management hearing to decide this question.
The court agreed with Kangatech’s arguments, holding that they were not satisfied that an exclusive licensee of an exclusive licensee is within the scope of the term “exclusive licensee’” as defined in the Patents Act. Further, they held that the Act “makes explicit that the exclusionary character of an exclusive licence covers ‘the patentee and all other persons’”.
As to costs, the court held that Vald Performance pay the costs of the first respondent thrown away by reason of the amendments to the originating application and the statement of claim, due to the lack of standing issue, including the costs of the Case Management Hearing held to decide the matter, on an indemnity basis.
As you can see, complications can arise when licensing arrangements are set up that don’t meet the requirements set out by the Patents Act 1990. In this case, Vald Performance was able to make changes that corrected its standing, but this may not always be possible. This can occur especially when the parties to the licensing arrangements are unwilling to meet these requirements (for example for commercial reasons).
In addition, even if an assignment to the person suffering damages is carried out in order to remedy their standing, the right to claim retrospectively for damages may still not be available to the new patentee.
If the standing of the licensee cannot (or will not) be corrected, the patentee needs to be willing to commence the proceedings itself and claim an account of profits instead of damages.
The best practice would be to ensure that the licensee is a proper ‘exclusive licensee’ fitting the definition of the Patents Act before commencing proceedings, and preferably from day one.
If you have any questions about intellectual property or licensing, please feel free to call us and speak to one of our patent attorneys.