The Federal Court has recently explored new territory in considering the statutory right to terminate a contract under section 145 of the Patents Act 1990 (Cth). Comparable versions of the provision have been in previous iterations of Australia's patents legislation since the Patents Act 1909 (Cth) but it is only now that the statutory right has received the attention of an Australian court.
In MPEG LA, L.L.C. v Regency Media Pty Ltd [2014] FCA 180 the Federal Court held that a licensee was not able to invoke the statutory right to terminate a licence agreement because only some, and not all, of the licensed patents relating to the invention had expired. The patents related to the use and implementation of the MPEG-2 video and data compression and data transport standard (MPEG-2 Standard) and were owned by several patentees (including Sony and Panasonic). The licence agreement was the result of a pooling arrangement which allowed all patents relevant to the MPEG-2 Standard to be licensed to a licensee in one agreement.
The licensee in this case, Regency Media Pty Ltd (Regency Media), entered into the licence agreement in July 2009. In July 2012, following the expiry of several of the licensed patents, Regency Media sought to terminate the agreement in reliance on section 145 of the Patents Act 1990 (Cth). This was notwithstanding that some of the licensed patents remained in force, with the last due to expire in January 2015. The question for the Court was whether section 145 had been lawfully invoked by Regency Media. Section 145 of the Patents Act 1990 (Cth) reads:
Termination of contract after patent ceases to be in force
(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.
The principal issue was how the undefined term "patented invention" in this provision should be interpreted. On Regency Media's interpretation, each patent the subject of the licence constituted a "patented invention" under section 145 of the Patents Act, such that expiry of any one of the patents would enable Regency Media to terminate the licence agreement relating to all the patents. On the licensor's interpretation, the word "patented" as used in section 145 simply described the "invention" being referred to, such that a "patented invention" was to be identified by reference to the matters which were the subject of the grant of rights under the licence agreement and whether they each constituted a "manner of new manufacture" for the purposes of the definition of an "invention" under the Patents Act. Under this interpretation, a "patented invention" could be covered by several patents and it was only when all of those patents had expired that the statutory right of termination could be invoked.
The Court agreed with the licensor's approach, finding that there were three matters under the licence agreement which constituted "patented inventions", namely "MPEG-2 Decoding Products", "MPEG-2 Encoding Products" and "MPEG-2 Packaged Medium". Accordingly, section 145 could not be invoked by Regency Media until all patents under the licence agreement had expired (these being all the patents referable to one or other of the three "patented inventions" under the licence agreement).
As the Court noted, the object of section 145 was clear. A patentee should not be allowed to exploit a licensee by compelling the licensee to continue paying licence fees or royalties once the relevant patents have expired. Equally, a patent holder should not be denied the benefit of royalties that a licensee has agreed to pay whilst those patents remain in force. Section 145 manifestly did not permit a contract to be terminated "where all of the patents, by which the invention [is] protected" had not yet expired.
This decision provides reassurance to the licensors of a single invention that is covered by a portfolio of patents. In particular, absent a contractual provision to the contrary, where a multi-patent licence agreement grants rights to subject matter constituting a single invention, section 145 of the Patents Act 1990 cannot be invoked to terminate the agreement whilst any of the licensed patents relating to that invention remain in force. However, the decision does not provide any guidance on termination rights where the licensed subject matter includes several different inventions and one of those inventions is wholly covered by a discrete patent or patent portfolio that has expired.
