Regency Media Pty Ltd v MPEG LA, L.L.C. [2014] FCAFC 183: Termination Under Section 145 of the Patents Act
Monday 9 February 2015 @ 11.33 a.m. | IP & Media
The Full Federal Court made an important decision in December 2014 about the application of section 145 of the Patents Act 1990 (Cth) in Regency Media Pty Ltd v MPEG LA, L.L.C. [2014] FCAFC 183. The case was an appeal from the Federal Court that revolved around a licensing agreement for a suite of Australian and foreign patents. MPEG LA, L.L.C acted as a “licensing administrator” on behalf of a group of patentees, including “those essential to a standard, here the MPEG-2 Standard, which is an international standard relating to video data compression and data transport” [at 2]. They executed a contract with Regency Media on 28 July 2009 for the “MPEG-2 Patent Portfolio”. The contract purported to provide that Regency could not terminate the contract prior to 31 December 2015. However, Regency indicated on 5 July 2012 that it intended to terminate the contract by relying on s 145 of the Patents Act. The issue in the primary case and the appeal was whether the termination was effective, which revolved around the issue of construction of section 145.
Section 145
145 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.
Decision
By 5 July 2012, a number of the Australian patents included in the portfolio had expired. The central question was whether this gave Regency the right to terminate the contract.
In two separate but concurring judgments, the Full Federal Court accepted part of Regency’s argument on appeal, supporting their “characterisation of a ‘patented invention’ as an invention in respect of which a patent has been granted under the Act” [at 16], and rejecting MPEG’s submission “that “patented invention” was determined by the description in the Contract” [at 17]. However, Regency did not succeed overall. Bennett and Pagone JJ concluded that the correct construction of section 145 was that the section:
“requires that there may be termination of a contract only after all of the patents the subject of the contract, that is, all of the patents for all the inventions the subject of the contract, have expired.”
In coming to the conclusion the Court considered the balance between contractual rights and patent rights in Chapter 14 of the Patents Act. The Court noted the force in Regency’s argument that there were “commercial and policy reasons why a licensee should not continue to pay royalties where an invention the subject of the licence is no longer the subject of a subsisting patent” [at 25], but felt that the disadvantage should be addressed at the contract negotiation stage. Bennett and Pagone JJ said:
“Regency negotiated a licence fee that included patents now expired but must be taken to have been aware of the expiry of patents during the term of the Contract when it negotiated that fee. This is supported by the fact that the October 2009 amendment to the Contract provided for royalty rates, those rates decreasing over specified periods of time in recognition of the ever approaching end to each of the patents” [at 25].
They noted that there were also “countervailing commercial and policy reasons of at least equal force” :
“For example, if the licensor of a machine, or of essential patents necessary to implement a standard in a device, took advantage of s 145(1) to terminate the licence, a licensee would be left without the benefit of a licence where only one patent for one of the myriad of inventions the subject of the licence necessary for the working of the machine, or for the implementation of the standard, had expired. The effect of a termination would be to deprive a licensor of its contractual licence fees and the licensee of its right to exploit the product after expiry of the first patent, for the remaining term of the agreement.” [at 27]
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Sources:
Regency Media Pty Ltd v MPEG LA, L.L.C. [2014] FCAFC 183
MPEG LA, L.L.C. v Regency Media Pty Ltd [2014] FCA 180
