HRC Project Design Pty Ltd v Orford Pty Ltd
[1997] APO 12
•8 April 1997
official notice
decision of a deputy commissioner of patents
Patent: No. 534059 in the name of HRC Project Design Pty Ltd
Title: Lifting Aid
Action: Application under Regulation 22.21 by Orford Pty Ltd for a licence, and opposition thereto by the patentee.
Decision: Issued .
Abstract
Where a patent ceases, the restoration under section 223 is not a full restoration of the rights of the patentee. Rather [by reason of s.223(9)] it is a restoration of patent rights other than those rights accrued by third parties who have exploited (etc) the invention during its period of cessation, whether or not those rights are known to the patentee or Commissioner at the time of restoration.
s.223(9) and reg 22.11 is a mechanism whereby the Commissioner formally grants rights to third parties to use an invention, those rights having been (in effect) reserved upon restoration. The grant of those rights is by way of licence – that is, the grant of a right to exploit an invention with immunity from infringement under the relevant patent.
An application for a licence under Reg 22.21 is an application as between the third party and the Commissioner; it is not an application to adjudicate a licence as between the parties.
A licence under Reg 22.21 does not involve royalties.
Licence granted, subject to terms rendering the licence personal to the requestor. In the circumstances of the case, the licence was not restricted to any particular form of the invention covered by the patent.
patents act 1990
decision of a deputy commissioner of patents
Re:Patent No. 534059 in the name of HRC Project Design Pty Ltd, application under Regulation 22.21 by Orford Pty Ltd for a licence, and opposition thereto by the patentee.
background
This matter concerns an application by Orford Pty Ltd [hereafter referred to as Orford] for licence to exploit the invention of Patent 534059. The patent was applied for on 10 March 1980, and granted on 23 May 1984. The Register currently records the patent as having been assigned to HRC Project Design Pty Ltd [hereafter referred to as HRC] who has opposed the application for the license.
A chronology of relevant events, as ascertained from the evidence, is:
June 1992 Orford inquired of their patent attorney the status of 534095, and were advised that it was in force.
10 March 1993 Patent 534095 ceased through non-payment of the renewal fee.
10 Sept. 1993 expiration of the ‘grace period’ for paying the renewal fee due March 1993.
April 1994 Orford heard that the then patentee had gone out of business. On inquiry, they were advised by their patent attorney that 534095 had ceased, through failure to pay the renewal fee due March 1993.
June 1994 Orford again inquired regarding the status, and received the same advice.
8 Nov 1994 S.223 request to pay the renewal fee due 10 March 1993, filed.
3 Feb 1995 further material to support the s.223 request filed.
2 Mar 1995 s.223 request advertised pursuant to s.223(4).
5 May 1995 s.223 request allowed [ie patent restored - s.223(7)].
25 May 1995 s.223 allowance advertised; HRC advises Orford that the patent was restored, and requested that they cease manufacturing and distributing the (invention).
On 1 Sep 1995 Orford filed an application under Reg 22.21 for a license to exploit the invention. HRC has opposed that application. Following service of evidence, the matter was heard in Sydney on 5 Mar 1997. HRC was represented by Mr P Harrison assisted by Dr I Ernst, patent attorneys of Shelston Waters, Sydney. Orford was represented by Mr C Anese, patent attorney of Cullen & Co, Brisbane.
The determination of this matter requires the consideration of section 223(9) & (10), and Regulation 22.21, which relevantly provide:
S.223
(9) Where an extension of time for more than 3 months is granted for doing a relevant act, the prescribed provisions have effect for the protection or compensation of persons who, before the day on which the application for extension of time is advertised under subsection (4), exploited (or took definite steps by way of contract or otherwise to exploit) the invention concerned because of the failure to do the relevant act within the time allowed, the lapsing of the patent application or the ceasing of the patent, as the case may be.(10) Infringement proceedings cannot be brought in respect of an infringement committed:
(a) between the day on which the patent application lapses and the day on which it is restored; or
(b) between the day on which the patent ceases and the day on which it is restored
Reg 22.21
(2) Persons who availed themselves of or exploited, or took definite steps by contract or otherwise to avail themselves of or exploit, inventions:
(c) in the case of inventions to which subsection 223 (9) of the Act applies-within the period of time extended under that subsection;
may apply, in the approved form, to the Commissioner for the grant of licences to exploit the inventions.
(4) A person on whom a copy of an application has been served may oppose the grant of the licence.
(5) The Commissioner, if reasonably satisfied that the application should be granted, must grant a licence to the applicant on such terms as the Commissioner thinks reasonable.
[Note that the references to ‘avail’ in r.22.21 relate to s.41, to which the regulation also applies.]
Regulation 22.21(4) does not set out any specific grounds for opposing an application under reg 22.21(2), although they clearly must relate to the basis for granting a licence. The statement of grounds and particulars asserts there has been no relevant exploitation of the invention. It also queries whether the Commissioner has the power to grant a licence, on the basis that it would involve consideration of equitable interests and therefore ought to be in the province of the courts (but this was not pursued at the hearing.) At the hearing:
Mr Anese argued that Orford had met the prerequisites for a licence; that the opposition was properly limited to that issue only; and that the issue of terms of the licence were for decision between the applicant and the Commissioner. Mr Anese was adamant that royalties had no place as a term of the licence, and that any consideration of royalties as a possible term of a licence was misplaced.
Mr Harrison argued that the applicant had not provided evidence that established there was exploitation within the relevant time period to enliven the right to a licence. He also argued that if a licence was granted, it should include a term that there be a royalty payment as just compensation to the patentee.
Section 223(9) is equivalent to section 160(6) of the Patents Act 1952. S 160(6) was incorporated into the 1952 Act in 1960 (No 107 of 1960) when the grounds for obtaining an extension were expanded from solely ‘circumstances beyond control’ to include ‘errors or omissions’. As far as I can ascertain, there was no explanatory memoranda with the Bill. In the second reading speech on 2 June 1960 (Hansard, pg 2213 at 2214) all that was said by Sir Garfield Barwick in relation to the protection and compensation provisions was:
“Provision is also made by the amendment to protect persons who are adversely affected by an extension of time under the section.”
To the best of my knowledge the pesent case is the first request for a licence under Reg 22.21 (or the equivalent Regs 50 to 52 in the 1952 Act) that the Commissioner has received – with a consequential lack of precedence. I also observe that there is no equivalent provision in the UK Patents Act (including Licenses of Right) or in other relevant jurisdictions. With this background, the issues that I need to consider to determine the present application are:
· was there relevant exploitation of the invention?
· should a licence be granted? and, if so
· on what terms?
Was there relevant exploitation?
The invention relates to a device for assisting lifting objects such as a tray holding glasses in a cabinet used for chilling the glasses. It would seem to be agreed between the parties that the applicant has been selling chilling cabinets which contains a lifting device which prima facie is within the scope of the invention claimed. That is, there is no real dispute concerning the technical details of what has been exploited.
The protection and compensation provisions of Reg 22.21 arise from s.223(9), cited above. From that provision it is apparent that for the applicant to gain the benefit of the protection and compensation provisions they must have exploited (or taken definite steps...) the invention in the period:
commencing after the date the relevant act was not done. [I observe that if the exploitation had commenced before that date, it would need to be established that continued exploitation after that date was ‘because of the failure to do the relevant act’]; and
ending on the day preceding the advertisement under s.223(4).
HRC contend that there is no evidence that Orford exploited (or took definite steps...) in this period [that is, within the period 10 March 1993 to 2 March 1995.] They argued that the onus was on Orford to provide the relevant evidence; that they had not produced any evidence by way of receipts or the like; and that the assertions by Orford in his declaration (such as that they had expended $40000 between June 1994 and December 1994) were insufficient. They conclude that the evidence is insufficient to establish that relevant exploitation (or the taking of definite steps...) occurred in the relevant time period. That is, the precondition for the grant of a licence has not been established.
In considering this issue, I first observe that the evidence of Orford is that they were aware of the patent at least as early as 1992, but did not exploit the invention then, nor when they first learnt of its cessation in April 1994. This evidence has not been controverted. I have no reason to conclude that there was any exploitation of the invention by Orford prior to the patent ceasing.
Secondly, with regard to establishing exploitation (or the taking of reasonable steps) before the s.223(4) advertisement occurred, the evidence of the applicant includes declared assertions without any support (such as documentary evidence of expenditure or sales), and it is not apparent why such supporting evidence was not provided. Nevertheless, I do not think that it is appropriate in all the circumstances to draw conclusions adverse to Orford, as:
there is no evidence that contradicts the evidence of Orford; and
the evidence of Godfrey (for the patentee) includes copies of technical drawings of Orford of a glass chilling cabinet containing a device apparently corresponding to the invention. Those drawings are dated 31 Aug 1994 (a date not disputed), which is well within the relevant time period.
That is, despite the paucity of direct evidence from HRC, I am reasonably satisfied that Orford had taken definite steps by way of contract or otherwise to exploit the invention circa August 1994 – after the patent had ceased, and before the s.223(4) advertisement. Accordingly I am reasonably satisfied that the prerequisite conditions for the grant of a licence under reg 22.21 have been established.
should a Licence be granted?
Having found the preconditions for the grant of a licence have been met, there remains an issue of whether I must necessarily grant a licence. Regulation 22.21(5) provides:
The Commissioner, if reasonably satisfied that the application should be granted, must grant a licence to the applicant on such terms as the Commissioner thinks reasonable.
Mr Harrison contends that I cannot be reasonably satisfied that the application should be granted, on the basis that Orford has not provided a draft licence setting out the terms being sought. He contends that without this, I cannot be satisfied as to whether the licence would be reasonable. However, I think reg 22.21(5) involves two distinct considerations: whether –
it is reasonable for a licence (irrespective of terms) to be granted; and
the terms of any such licence are reasonable.
The first consideration is not dependant upon any knowledge of the terms of any licence. Thus the absence of a proposed licence has no bearing on whether or not I can be reasonably satisfied that a licence should be granted. And this is consistent with the absence of any statutory requirement for the applicant to provide a proposed licence (both in the present regulations, and in the regulations and Form 27 under the 1952 Act). Accordingly I do not agree with Mr Harrison on this point; I think the absence of a draft licence is irrelevant.
Mr Anese contends that if I am satisfied that the conditions for the grant of a licence [as set out in Reg 22.21(3)] have been made out, I must necessarily be reasonably satisfied under subreg (5) that the application should be granted. I do not agree. In my view the grant of a licence under Reg. 22.21 necessarily entails the exercise of discretionary powers. And there is nothing explicit in subreg(5) to limit the discretionary considerations to the specific requirements of subreg (2). Rather, it seems to me that subreg (5) properly allows the Commissioner to have regard to all the circumstances in deciding whether a licence should be granted.
By way of example, I think if an applicant for a licence was implicated as a causative agent in the ceasing of a patent, that fact would be relevant to whether a licence should be granted. Also, noting that s.223 can relate to acts that do not result in an application lapsing or patent ceasing (ie acts that do not necessarily affect all rights that flow from the patent), I anticipate that the nature of the act that was not done may have a bearing on whether or not the Commissioner is reasonably satisfied that a licence should be granted in the circumstances of the particular exploitation. Other circumstances might be whether the patentee or their licencees have ceased working the invention, and whether the parties have already entered into a commercial agreement on the subject.
Nevertheless, having found that the applicant “took definite steps...” in the relevant time period, I am not aware of any circumstance in the present case that would reasonably lead me to not granting a licence. Accordingly I conclude that I must grant Orford a licence under reg 22.21.
Terms of the Licence
Having determined that I must grant a licence, I must determine the terms (if any) that I consider to be reasonable. My consideration can be broken into three issues:
for a licence under reg 22.21, can there be a royalty; if there can be a royalty, should there be one in this case, and (if so) the royalty?
in this case, should the licence be for the whole invention, or limited to what the applicant has actually done? and
general terms dealing with issues such as assignment.
Royalty
The major issue in contention between the parties was whether or not the Commissioner could/should include as a term of the licence the payment of royalties. Mr Anese vehemently asserted that the nature of the licence granted under reg 22.21 was such that that royalties were not an element of a reg 22.21 licence, and any consideration of the possibility of royalties was misguided.
Mr Harrison argued that royalties should be a term, with the Commissioner determining an appropriate royalty level. As support for the imposition of a royalty, he observed that if no royalty were due then a licence under reg 22.21 would have the same effect as a continuation of s.223(10); and that if the intention of the legislation was that there be no licence, this would have been addressed by way of an extension of s.223(10). I do not agree. S.223(10) provides an unconditional prohibition against actions for infringements that occur in the relevant period, whereas s.223(9) provides a conditional right to continue exploiting the invention after restoration. Further, the rights obtainable under s.223(9) may not necessarily arise from actions that are protected by way of s.223(10) – as might be the case of exploitation that commenced before a patent ceased. Accordingly I do not think I can draw any inferences about royalties under reg 22.21 from the presence of s.223(10).
To decide whether royalties are part of a reg 22.21 licence, the powers of the Commissioner under the Patents Act need to be understood. Those powers essentially relate to the giving of rights (such as by the grant of a patent) to a person, and (in certain situations) the removal of those rights [consistent with The Queen v Quinn; Ex Parte Consolidated Foods Corporation (1977) 138 CLR 1]. Further, the act provides a range of situations where a person loses their rights by way of their own (in)actions. Thus, as in the present case, if an annual renewal fee is not paid within the prescribed period, the patent ceases with consequential loss of rights by the patentee. However the Act recognises [by way of s.223] that there will be circumstances in which such loss of rights should be capable of rectification. Thus a patent can be restored if there are errors or omissions that have a causative relationship to the failure to perform the relevant act [see, for example, Sanyo Electric v Commissioner of Patents (1997)AIPC ¶91-217, 36 IPR 267]. And in deciding whether a patent should be restored, the activities of third parties with regard to exploiting the invention are per se of no relevance.
The Act also recognises [by way of s.223(9)] that persons who have exploited the invention (or taken definite steps...) require ‘protection or compensation’ in the event that a patent is restored. This is a natural consequence of the patent system, wherein there is an expectation that when a patent ceases the invention is free for all to use – the monopoly rights only exist while the patent is ‘in force’. I also observe that when a patent ceases, the public has no knowledge of whether or not the patentee has suffered an ‘error or omission’ such that the patent might be restored under s.223; and it is not reasonable (nor in the public interest) to impute a need for caution based on a possible request under s.223 – as that would be tantamount to a de facto maintenance of the patent monopoly for whatever period might be deemed appropriate (potentially years) after the patent has formally ceased.
Mr Harrison’s arguments in support of a royalty are implicitly based on the presumption that restoration under s.223 is a complete restoration of rights – with the result that the licence granted under reg 22.21 is necessarily akin to a commercial licence as between the parties. I do not agree. In my view s.223 and reg 22.21 operate (in the context of restoring a ceased patent) in the following manner:
Where a patent ceases, the restoration under section 223 is not a full restoration of the rights of the patentee. Rather [by reason of s.223(9)] it is a restoration of patent rights other than those rights accrued by third parties who have exploited (etc) the invention during its period of cessation, whether or not those rights are known to the patentee or Commissioner at the time of restoration;
s.223(9) and reg 22.11 is a mechanism whereby the Commissioner formally grants rights to third parties to use an invention, those rights having been (in effect) reserved upon restoration. The grant of those rights is by way of licence – that is, the grant of a right to exploit an invention with immunity from infringement under the relevant patent. Clearly those rights are not monopoly rights that can be exercised against other parties (as in the grant of a patent), but nevertheless the licence is the grant of a right by the Commissioner.
That is, the application for a licence under Reg 22.21 is an application as between the third party and the Commissioner. It is an application to the Commissioner for the grant of a right. The right the subject of the licence does not belong to the patentee, because of the restoration. An application for a licence is not an application to adjudicate a licence as between the parties.
Consistent with this interpretation, I observe that Reg 22.21 specifies that the third party applies to the Commissioner for the grant of a licence, and the Commissioner grants the licence. That is, the licence is between the third party and the Commissioner. It is NOT between the third party and the patentee.
In further support of my interpretation of the operation of s.223, I observe that it is fully consistent with the exercise of administrative powers of the Commissioner under the Act. On the other hand, I consider that the granting by the Commissioner of an inter parte licence imposing a royalty obligation on one of the parties (necessarily entailing equitable considerations as between the parties) would exceed the administrative powers of the Commissioner and the terms of the Act.
However, the fact that the licence is between the third party and the Commissioner does not eliminate all possibility of royalties being a term of a licence. In the same way as an inter parte contract may require payments to a third party beneficiary, I think a licence granted by the Commissioner to a third party could (at least in theory) include a term requiring payment of a royalty to the patentee. However, if the Commissioner were to impose such a term, there are a number of difficulties:
the patentee, not being a party to the licence, is not in a position to enforce payment of the royalty;
there is no public interest in the Commissioner seeking to enforce payment of the royalty (either by initiating action in the courts, or otherwise);
the Act and Regulations do not provide any mechanism for the revocation of a licence for non-compliance with its terms. This is consistent with a regime whereby the terms are limited to being restrictions imposed on the licence (such as by being personal to the licencee). It is not consistent with the imposition of an obligation (such as the payment of royalties) whereby revocation of the licence would be a reasonable result of non-fulfillment of the obligation; and
I consider that the imposition an obligation to pay royalties to a third party would in any event exceed the administrative powers of the Commissioner under the Act.
Accordingly, I think a term involving payment of a royalty to the patentee would be of no real effect, be inconsistent with the legislation, and be ultra vires. As a result, I do not consider that such a term would be a reasonable term.
I conclusion, I find that a licence under regulation 22.21 is not inter parte. Furthermore, a term on a licence between the Commissioner and the licensee requiring the payment of a royalty to the patentee, is prima facie not consistent with the legislation and not enforceable by the patentee. And I consider that the imposition of a term requiring the payment of royalties would be in excess of the administrative powers of the Commissioner under the Act. Accordingly a term requiring the payment of a royalty would not be reasonable.
Scope of the licence
HRC submitted that the licence should be restricted to that which Orford exploited (or took definite steps...) during the relevant period. Orford submitted that the invention really involved only one embodiment, and that the licence should extend to the whole patent.
Patent specifications usually contain a number of embodiments of the invention, with a range of preferred and optional features. Quite often preferred and optional features fall within the realm of common general knowledge, and would be such that one might reasonably expect to normally use them in a manufacturing environment. On the other hand, there are many specifications that contain quite distinct embodiments, such that the performance of one does not readily form the basis for the performance of another. In my view these factors need to be taken into account when considering the extent of the licence; in the former case the licence might cover the whole patent, whilst in the later the licence might be restricted to a particular embodiment of the invention.
Additionally, whilst it is not open at this stage for the third party to seek review before the Commissioner of the restoration under s.223 it may be that evidence, suggestive that the extension was inappropriately granted, might have a bearing on the scope of the licence that should be granted. For example, if the evidence is such that (had it been known to the Commissioner at the time) he would not have restored the patent – I think the Commissioner might reasonably have regard to this fact when considering the scope of the licence.
In the present case, the specification essentially has but one embodiment, with a range of optional features. It would also seem to be conceded that Orford has exploited ‘the invention’. Accordingly I consider the licence should not be restricted to any particular form of the invention, but extend to the whole patent.
Orford argues that there was undue delay in applying for restoration, and that the material filed in support of the restoration was unsatisfactory. On this basis they assert that the patent should never have been restored; and the Commissioner should not compound the error by penalising the applicant who lawfully used the invention. Having otherwise come to the conclusion that the licence should not be restricted to any particular form of the invention, I do not need to consider whether these arguments of themselves provide support for that conclusion.
General Terms
The parties were in agreement that, should I grant a licence, it should be a ‘personal’ licence, in the sense that:
· it would belong to the applicant company;
· it could be transferred with the business if it changed hands; but it could not be assigned or otherwise transferred;
· the licensee could not sublicence under the licence.
I agree that such terms are appropriate. I also consider that the licence should last for the term of the patent. Finally, recognising that the right to the licence accrued prior to the date of the s.223(4) advertisement, and noting that [by reason of s.223(10)] the need for a licence arises only after the date on which the patent was restored (5 May 1995), I consider that the licence should formally have effect from 5 May 1995.
The Licence
On the basis of my findings above, I grant to Orford Pty Ltd, of 256 Herries Street, Toowoomba, Queensland a licence to exploit the invention claimed in Patent no. 534095. The licence is granted subject to the following terms:
The licence commences on 5 May 1995, and continues until the expiration of the term of the patent.
The licence is personal to Orford Pty Ltd, in the sense that
a) it belongs to that company;
b) it may be transferred with that company if that company changes hands by acquisition or merger; but it cannot be otherwise assigned or transferred;
c) Orford Pty Ltd cannot sublicence under the licence.
Consistent with s.187 and reg 19.1, I direct that this licence be entered in the Register.
Costs
Costs before the Commissioner are usually in accordance with the event. At the hearing both parties argued that they should have their costs in any event. HRC’s basis for arguing this was that a key part of the evidence that demonstrated exploitation within the relevant time period was in their evidence, and not the evidence of Orford.
I consider that as the successful party, Orford is entitled to costs. Accordingly I award costs against HRC in accordance with schedule 8. But I think the proceedings were not aided by Orford’s evidence of exploitation, and I exclude the costs of Orford’s evidence from the award costs.
D Herald
Deputy Commissioner of Patents
Patent attorneys for the patentee : Shelston Waters, Sydney
Patent attorneys for the licencee : Cullen & Co, Brisbane
7
1
0