Australia: Road Blocks In Patent Litigation

The recent case of Grant & Anor v Australian Temporary Fencing Pty Ltd illustrates how inattention to detail in the drafting of a patent assignment and a patent licence agreement almost resulted in the patent owners and the exclusive licensee of the patent not being able to sue a third party for infringement of the patent.

The key points arising from the case can be summarised as follows:

Care needs to be taken to properly identify the intellectual property being assigned
In this case, the original assignment was expressed to be of 'petty patent no. 678755'. In fact, the intention had been to assign not only the petty patent but also the standard patent that related to portable fencing used in road works and from which the petty patent derived. The infringer argued that the assignee patent owner had no status to sue for infringement of the standard patent because the assignment of the standard patent was ineffective.

The judge rejected arguments that the court should read into the assignment a transfer of the standard patent because the drafting was unambiguous. In fact, the judge felt the drafting was very clearly confined to the petty patent.

Fortunately for the patent owner, the court was prepared to treat a second attempt at assigning the standard patent as a valid transfer. The court came to this conclusion even though the drafting of the subsequent assignment was also problematic. With the subsequent assignment, the problem arose because a recital attempted to retrospectively give validity to the original ineffective assignment, which the court held was not possible to do. However, because the second assignment also referred to the assignment of 'intellectual property rights' as at the date of their creation, the court was willing to hold that the transfer of the standard patent had been effectively and finally achieved.

A patent licence can only be effective if the patent owner is entitled to grant the licence
Logically, if an assignment of a patent is ineffective, then any licences of the patent granted by the assignee patent owner are also likely to be ineffective. In this case, as the original assignment was ineffective to transfer the standard patent, it was argued by the infringer that the licence of the standard patent that had been granted was also ineffective. Accordingly, the infringer asserted that neither the assignee owner of the standard patent nor the licensee could sue for infringement. Again, and most fortunately for the assignee patent owner and the licensee, while the court agreed with the infringer's basic reasoning, it was prepared to treat the licence as a licence in equity, which was perfected once the transfer of the standard patent to the new owner became effective.

Care must be taken in drafting the scope of a patent licence
Under the Patents Act only a patent owner or an exclusive licensee has status to sue for patent infringement. A non-exclusive licensee by way of contrast has no status to sue.

In this case, the infringer argued that as the licence agreement did not specify that the licence was exclusive, the licensee had no right to sue. In addition, for the licence to be exclusive, it was argued that the rights granted in the licence must cover all rights held by the patent owner. Here, it was argued, that there was no right to import and therefore, not all rights had been granted to the licensee. The court was not willing to accept this argument on the basis that unlike the previous Patents Act, the current Patent Act does not require an exhaustive list of all the rights set out in the legislation to be granted to the licensee in order for the licence to be exclusive.

In conclusion, the patent owner and licensee in Grants case were ultimately successful in defending their respective interests in the standard patent and entitlement to both sue for infringement. Nevertheless, vindicating these rights must have been a significant and time consuming diversion from the patent infringement action that had been initiated by them. The moral of the story is of course that a little more care earlier on in drafting the assignment and licence agreements would most likely have saved a lot of time and expense later on!