High Court rules on the requirements of "exclusivity" in patent licensing arrangements in two recent decisions

The court’s recent decisions in Illumina, Inc & Ors v Premaitha Health Plc & Ors [2017] EWHC 2930 (Pat) and Oxford Nanopore Technologies & Anor v Pacific Biosciences of California, Inc & Anor [2017] EWHC 3190 (Pat) serve as a helpful reminder as to how the court will assess whether a licence is truly “exclusive” for the purposes of section 130(1) of the Patent Act 1977.

The court’s recent decisions in Illumina, Inc & Ors v Premaitha Health Plc & Ors [2017] EWHC 2930 (Pat) and Oxford Nanopore Technologies & Anor v Pacific Biosciences of California, Inc & Anor [2017] EWHC 3190 (Pat) serve as a helpful reminder as to how the court will assess whether a licence is truly “exclusive” for the purposes of section 130(1) of the Patent Act 1977. By way of a reminder, under section 67(1) of the Patents Act 1977, an exclusive licensee has the same right as the patentee to bring proceedings in respect of any infringement of the patent committed after the date of the licence. Section 130(1) of the Patents Act 1977 defines an exclusive licence as “a licence from the proprietor of….a patent conferring on the licensee, or on him and persons authorised by him, to the exclusion of all other persons (including the proprietor…), any right in respect of the invention to which the patent or application relates.”

Set out below is a summary of the decisions of Carr J in Illumina, Inc & Ors v Premaitha Health Plc & Ors and David Stone (sitting as a Deputy High Court Judge) in Oxford Nanopore Technologies & Anor v Pacific Biosciences of California, Inc & Anor as to whether a particular licence was, in fact, exclusive for the purposes of patent standing.

Illumina v Premaitha Health

In this case, Sequenom, Inc. (Sequenom) purported to have granted Illumina, Inc. (Illumina) an exclusive licence to work three patents (referred to as Lo1, Lo2 and Lo3). However, the licence granted under: (i) Lo1 was granted to Illumina and its affiliates (Licence 1); and (ii) Lo2 and Lo3 was subject to reserved rights for the patentee to use and develop the Lo2 and Lo3 patents for academic research and publication as well as a right for the patentee to grant the Hong Kong Government a non-exclusive licence if certain conditions were met (Licence 2).

Carr J held that Licence 1 did not constitute an exclusive licence under section 130(1) of the Patents Act 1977 on the basis that the licence was not granted to Illumina to the exclusion of all others, but rather to Illumina and all of its affiliates. Importantly, Carr J distinguished between an exclusive licensee who has the right to grant sub-licences and a licence granted directly to a group of companies. Carr J rejected the argument that the licence remained exclusive because each affiliate was under the control of Illumina and, therefore, to the extent its affiliates worked the patent it did so under the authority and direction of Illumina. Instead, Carr J noted that each affiliate was a non-exclusive licensee in its own right and did not need the authority of Illumina to work the patent.

Conversely, Carr J held that Licence 2 was an exclusive licence for the purposes of standing notwithstanding that the patentee had the right to: (i) use and develop the Lo2 and Lo3 patents for academic research and publication; and (ii) grant a third party a non-exclusive licence upon certain conditions (following a request by such third party). In reaching this conclusion, Carr J noted that:

  • The retained right of the patentee to use and develop Lo2 and Lo3 patents only extended to non-commercial research - it did “not extend to authorisation of any third party for commercial purposes”. Consequently, notwithstanding the retained rights, Illumina still had the benefit of an exclusive licence to exploit the patents for commercial purposes, which was sufficient because a licensee need only have an exclusive licence in respect of “any right” under the patent.
  • The right to grant the Hong Kong Government a non-exclusive licence had not yet been exercised and was “conditional and contingent on a request being made, which has not happened. The licence to Illumina remains exclusive since no other party has a licence nor is [the patentee] contractually able to grant a licence to any other party.”

Oxford Nanopore Technologies v Pacific Biosciences of California

In a similar case to Licence 2, Harvard College (“Harvard”) granted Oxford Nanopore Technologies Ltd (“ONT”) an exclusive licence under certain licensed patents, subject to an option for a third party to have a non-exclusive licence under the same patents upon such third party’s request.

Guided by Carr J’s decision in Illumina (amongst others), Mr Stone sought to assess whether the “option” in this case could and should be distinguished from the right reserved for the Hong Kong Government in Illumina, such that ONT should not have standing. Much of the debate centered on the fact the licence to the Hong Kong Government in Illumina could only be made if requested and if one of the other conditions listed was met. In contrast, the third party in this case had “an absolute, indefeasible right to a licence immediately on request” from Harvard.

While Mr Stone acknowledged that there was a distinction between the two, he considered it to be slight. In particular, Mr Stone noted that the conditions listed in the Illumina licence were not particularly onerous and would, presumably, be easily met if the Hong Kong Government decided it wished to take a licence. In particular, Mr Stone commented that “it cannot be the position that the exclusivity (or otherwise) of a patent licence depends on the difficulty of the hurdle a third party has to meet before calling for a licence. If the Lo 2 and Lo 3 licence is exclusive, then, in my judgment, so must [this licence]…. whilst [the third party] has a right to call for a licence, it is currently excluded. Were it to work the invention, it would be infringing the Patent, unless and until it completed the contractual step of asking for a licence. That step is not an onerous one. But it is a step - a step which [the third party] has not yet taken, and may never take.”

Mr Stone included in his judgment a helpful summary of the key principles to bear in mind when assessing whether an exclusive licence is, in fact, exclusive for the purposes of patent standing, including:

  • whether a licence is exclusive will depend on a proper construction of the document, not what it is called
  • it is for the licensee to demonstrate exclusivity (rather than for the other party to prove it is not exclusive)
  • the assessment of whether a licence is exclusive is not a “once and for all assessment”, but rather an assessment at the relevant point in time (eg an exclusive licence which allows the licensor to convert the licence into a non-exclusive licence if certain obligations are not met is still considered to be exclusive unless and until that right is exercised)
  • an exclusive licence may only be granted to one person - a licence will not be exclusive if granted to a number of entities, even if they are under the same control (ie affiliates)1, and
  • where there is an equitable right to call for a licence, and this is conditional, the licence will be considered exclusive unless and until the right is exercised.

Commentary

Ensuring a licensee has standing to bring patent infringement proceedings can be material in cases where significant loss is suffered by the licensee as a result of infringement and such loss would not otherwise be recoverable by the patentee.

Whilst at first blush this should not present an issue from a drafting or interpretation perspective, in practice licences can be subject to various mechanisms which may pose an issue, as well as the use of US-style nomenclature such as “sole and exclusive” licences or “co-exclusive” licences. These cases are useful in clarifying the basic matrix for determining a licensee’s standing. In particular, confirming that a licence to a group of affiliates will constitute a non-exclusive licence means that licensees wanting to ensure exclusivity should procure a right to sub-license freely to affiliates rather than pursue a direct grant to a group of companies.

Whilst these cases provide some helpful reassurance on the meaning of sections 67 and 130 of the Patents Act 1977, there remain issues to be explored further. First is the reference to exclusivity of “any right” under a patent, suggesting that any degree of exclusivity will be sufficient for standing. It is not clear if the right of exclusivity needs to have any relevance to the claim before the court. For example, would exclusive research and development rights permit standing for infringement to recover loss of revenues when commercialisation of the patent is granted on a non-exclusive basis? Likewise, when is the relevant point in time for the determination of whether a licence is exclusive? Presumably the relevant point in time is when the infringement occurred, rather than when proceedings are brought. Furthermore, it remains to be seen whether the converse approach of converting a non-exclusive licence to an exclusive licence immediately before proceedings are launched in order to provide standing is sufficient. Notably, section 67 of the Patents Act 1977 permits an exclusive licensee to bring proceedings “in respect of any infringement of the patent committed after the date of the licence”. This would suggest that merely converting a non-exclusive licence to an exclusive licence is unlikely to be sufficient unless that exclusive licence is also deemed to have retrospective effect to a date prior to the alleged infringement occurring, which may have other unforeseen consequential effects.


1 However, this does not preclude multiple exclusive licensees under the same patent each in respect of different fields or an exclusive licensee being able to have the right to sub-license.

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