Indirect Infringement: Australian and U.S. approaches compared

Dr. Victoria Longshaw and Dr. Elizabeth Houlihan

A recent decision handed down by the Federal Court of Australia, Blue Gentian LLC v Product Management Group Pty Ltd [2014] FCA 1331, illustrates the different way in which Australian Courts assess induced or indirect patent infringement when compared to Courts in the U.S.

Inducement of infringement in the U.S.

In terms of 35 U.S. Code § 271 (b), “whoever actively induces infringement of a patent shall be liable as an infringer.” A finding of indirect inducement infringement in the U.S. requires a plaintiff to successfully show that (a) another person actually infringed the Patent, (b) the defendant knew of the Patent, and, (c) knowingly induced the infringing acts of the other person with a specific intent to encourage infringement by that person (Vita-Mix Corp. v. Basic Holding, Inc. 581 F.3d 1317, 1328 (Fed. Cir. 2009)).

Inducement of infringement in Australia

In Australia, indirect infringement by inducement does not require any knowledge on the part of the defendant either of the Patent or of any direct infringement of the Patent. However, it does require that another person would directly infringe the Patent if using the product supplied, according to any instructions supplied with the product.

Indirect infringement is regulated by Section 117 of the Patents Act 1990 (Cth) which simply requires that “if the use of a product by a person would infringe a Patent, the supply of that product by one person to another is an infringement of the patent by the supplier unless the supplier is the patentee or licensee of the Patent.” The use of the product includes, inter alia, “the use of the product in accordance with any instructions for the use of the product, or any inducement to use the product, given to the person by the supplier or contained in an advertisement published by or with the authority of the supplier.”

The Case

The recent decision in Blue Gentian LLC v Product Management Group Pty Ltd [2014] illustrates the typical way in which an Australian Court reaches a finding of indirect infringement by inducement.

The case involved infringement proceedings initiated by Blue Gentian LLC (“Blue Gentian”), the Patentee of Australian Innovation Patents 2012101797 and 2013100354 (“the Patents”) and its exclusive licensee, Brand Developers Aust Pty Ltd (“Brand Developers”) against Product Management Group Pty Ltd (“PMG”).

The Patents relate to an expandable and contractible hose having an elastic inner tube and an inelastic outer tube, attached at their respective ends. The hose had a water flow restrictor attached to one end and was designed to attach to a water faucet at the other. When the water faucet was turned on, the increased water pressure in the inner tube caused it to expand in length and diameter until constrained by the outer tube. When the water faucet was turned off, the water pressure decreased and the water drained from the inner tube causing it to contract. The outer tube then also contracted, gathering in folds along the length of the hose. This lightweight hose was described as easy and convenient to pack and store, as well as convenient to use because it does not “kink”.

Blue Gentian claimed that PMG’s importation and sale of a “Pocket Hose” directly infringed both of its Patents. Blue Gentian also claimed that PMG’s supply of instructions with the Pocket Hose which instruct a user to connect the one end of the hose to a tap and the other end to a spray nozzle, turn on the water supply and allow the hose to fully expand before use, constituted indirect infringement of the Patents.

PMG cross-claimed that the Patents were invalid on various grounds including that the Patents were anticipated by an earlier U. S. Patent describing a self-elongating oxygen hose for a stowable aviation crew oxygen mask.

The Court systematically construed each of the integers of the Patent Claims and concluded that the Claims were clear, fairly based and sufficiently described, and furthermore that the prior art provided by PMG did not anticipate the Patents.

After upholding the validity of the Patents, the Court turned to the question of infringement. PMG was held to have directly infringed several Claims of the Patents, as the Pocket Hose had all of the integers of the Claims based on the Courts construction. In addition, the Court found that the use of the Pocket Hose as instructed involved the use of a garden hose having all of the features of the pleaded Claims and, as such, constituted indirect infringement in terms of Section 117(2)(c).

Take Home Message

It is worth bearing in mind that a claim of indirect patent infringement by inducement in Australia has different requirements to an analogous claim in the U.S. It is not necessary for a plaintiff in Australia to prove that a defendant knew of the Patent or knew that use of an infringing product by another person either infringed, or would infringe, the Patent.

In order for a Patentee of an Australian Patent to successfully pursue a claim of indirect infringement by inducement, it must be shown that another person would directly infringe the Patent if using the product supplied by an infringer, according to any instructions supplied with the product.

License Agreements for Patent Pools: licensees beware

Dr. Victoria Longshaw and Dr. Elizabeth Houlihan

A recent case before the Full Bench of the Australian Federal Court of Australia, Regency Media Pty Ltd v MPEG LA., L.L.C. [2014] FCAFC 183, is a cautionary tale for licensees entering into a License Agreement for a Patent pool which includes Australian Patents.

In this case, the Court confirmed that a licensee will only be statutorily entitled to terminate a Patent License Agreement in Australia when all of the Patents described in the Agreement have ceased.

The case involved an appeal from MPEG LA., L.L.C. v Regency Media Pty Ltd [2014] FCA 180, in which a licensee, Regency Media Pty Ltd (“Regency Media”) unsuccessfully relied on Section 145 of the Patents Act 1990 (Cth), and was found to have unlawfully terminated a Patent Portfolio License Agreement (“the PPL Agreement”).

This Decision provides guidance on how Section 145 of the Patents Act 1990 (Cth) should be interpreted. Until now, the application of this provision in terminating Patent License Agreements has received little judicial consideration in Australia.

The Facts of the Case

MPEG LA., L.L.C. (“MPEG”) represents Patent owners in relation to various Patent pools, such as those essential to a standard, in this case the MPEG-2 Standard, an international standard relating to video data compression and data transport.

MPEG entered into the PPL Agreement with Regency Media in relation to a pool of Patents, the “MPEG-2 Essential Patents.” The Patent pool included Australian Patents and foreign patents. The PPL Agreement provided to Regency Media “a royalty-bearing worldwide, non-exclusive, non-transferable sublicense under all MPEG-2 Patent Portfolio Patents to make, have made, use, and sell, or offer for sale MPEG-2 Decoding Products.” Similar rights were granted with respect to “MPEG-2 Encoding Products” and “MPEG-2 Packaged Medium.”

Importantly, the license was granted for inventions which were described and defined in the PPL Agreement using the terms “MPEG-2 Decoding Products,” “MPEG-2 Encoding Products” and “MPEG-2 Packaged Medium,” rather than by reference to the inventions described in the Patents covering those inventions.

The PPL Agreement provided that Regency Media may “not terminate this Agreement prior to December 31, 2015.” Some of the Australian Patents that were the subject of the license expired prior to 5 July 2012, while others expired between July 2012 and October 2013. A further Patent expired on 17 January 2014, and other Australian Patents were due to expire between March 2014 and January 2015.

After some of the Patents had expired, Regency Media relied on the statutory entitlement of a licensee to terminate a contract which is provided by Section 145 of the Patents Act 1990 (Cth) and purported to terminate the PPL Agreement by way of a letter dated 5 July 2012. This termination was disputed by MPEG as unlawful.

The Earlier case

The issue in dispute was whether Regency Media could rely on Section 145 to terminate the PPL Agreement.

Section 145 provides for the termination of a contract after a Patent ceases to be in force as follows:

“s145    (1) A contract relating to the lease of, or a license 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 of 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.(emphasis added)

MPEG argued that the “patented invention” of Section 145 referred to the “MPEG-2 decoding Products,” “MPEG-2 Encoding Products” and “MPEG-2 Packaged Medium” as described in the PPL Agreement.

Regency Media argued that the term “patented invention” of Section 145 referred to each “invention” embraced by a single Patent.

The Court preferred MPEG’s construction of Section 145. Regency Media was found to have unlawfully terminated the PPL Agreement.

The Appeal Case

Regency Media appealed to the Full Bench of the Federal Court. The central issue to be determined was the meaning of “a patented invention” in Section 145(1).

The Court also had to determine whether entitlement to terminate a License Agreement for a Patent pool arises when (1) all of the Patents in a licensed patent pool expire, or (2) when all of the Patents that protect any one invention expire.

Relying on Section 23(b), together with Section 2, of the Acts Interpretation Act 1901 (Cth), MPEG argued that the singular reference to “a patented invention” includes the plural, “unless the contrary intention appears.”

The Appeal Court disagreed with the finding of the primary Court and accepted Regency Media’s argument that the term “patented invention” of Section 145 is not defined by reference to the PPL Agreement, but instead refers to each “invention” embraced by a single Patent.

However, the Appeal Court also agreed with MPEG’s argument that the singular reference in Section 145 to “a patented invention” includes the plural. Consequently, Section 145 was interpreted as requiring 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 of the inventions the subject of the contract, have expired.

The Appeal was dismissed and half of the costs of the appeal awarded to MPEG.

Take Home Message

The current position in Australian law is that Section 145 is to be interpreted to mean that a License Agreement may only be terminated under this provision when all of the licensed Patents have expired.

Licensees should be cautious when entering into Patent License Agreements which include the grant of Patent rights in Australia. Where a licensee negotiates a license fee that includes Patents due to expire during the term of the Agreement, the licensee will be taken to have been aware of the expiry of Patents during the term of the Agreement when it negotiated that fee.

Tiered royalty payment structures should be included in any Patent License Agreement entered into in order to take into account Australian Patents due to expire during the term of the Agreement. Otherwise, licensees could well end up paying full royalties under an enforceable Patent License Agreement even after some of the Australian Patents of the portfolio licensed have ceased.

© Copyright 2021 - Houlihan² Pty Ltd. All Rights Reserved.