Importance of registering exclusive licence to recover full costs

The importance of registering an exclusive licence was underlined in a recent High Court decision, where the claimant exclusive licensee was deducted 35% of its costs in successful infringement proceedings for failure to register an exclusive licence.

Background

L'Oréal Société Anonyme (L'Oréal SA) is proprietor of a patent related to facial skin care devices and granted L’Oréal (UK) Limited (L’Oréal UK) an exclusive licence in July 2008. L’Oréal failed to register the exclusive licence until December 2016.

The first instance case involved a patent infringement claim against RN Ventures Limited (RN) related to products sold by RN in 2012. L'Oréal SA and L'Oréal UK were successful on the substantive issues and a subsequent costs hearing determined L'Oréal SA and L'Oréal UK’s ability to recover costs. The position on costs was not straightforward as RN’s infringement mostly occurred when the exclusive licence was unregistered, as set out below:

timeline

Recovery of costs

English law generally applies the "loser pays" principle in court litigation, meaning a successful claimant can hope to recover a significant proportion of its costs. However, in patent infringement proceedings, Section 68 of the Patents Act 1977 prevents an exclusive licensee from recovering costs as follows:

"Effect of non-registration on Infringement proceedings: [Where by virtue of a transaction a person becomes an exclusive licensee of a patent] and the patent is subsequently infringed before [the exclusive licence] is registered, in proceedings for such an infringement, the court or comptroller shall not award him costs or expenses unless:

  • [the exclusive licence] is registered within the period of six months beginning with its date, or
  • the court or the comptroller is satisfied that it was not practicable to register [the exclusive licence] before the end of that period and that it was registered as soon as practicable thereafter." [emphasis added]

Previously, it was held that a successful licensee in patent infringement proceedings could recover all its costs from the date of registration. The Supreme Court rejected this interpretation of Section 68 in Schutz v Werit [2013] UKSC 16, noting it would “leave the section with very little bite, as an unregistered licensee could avoid its consequences simply by registering and then starting the proceedings”.

The claimants argued L’Oréal SA should be entitled to recover all costs of the infringement claim. RN resisted this on two grounds:

  • the exclusive licence expressly granted L’Oréal UK the right to bring proceedings, to the exclusion of L’Oréal SA, and
  • this approach (failing to deprive the exclusive licensee of its costs for failure to register) would leave Section 68 with “no bite”.

Decision

Mr Justice Henry Carr rejected the first ground. The scope of the exclusive licence confirmed L’Oréal UK had the right to bring proceedings, but did not suggest this was to the exclusion of L’Oréal SA.

Carr accepted RN’s second argument and went about determining how to add “bite” to Section 68.

Carr’s reasoning applied Section 68 to the costs incurred by L’Oréal UK on the infringement claim prior to registration of the exclusive licence, as follows:

  • 50% of the total costs related to the patent infringement claim
  • 70% of those costs (ie 35% of the total costs) were incurred pre-registration of the exclusive licence, and
  • 50% of those costs (ie 17.5% of the total costs) were incurred by L’Oréal UK.

Carr therefore ordered a 35% costs deduction for L’Oréal UK as exclusive licensee, representing a deduction of 17.5% of the total costs.

Practical implications

Exclusive licensees should register any exclusive licence in accordance with Section 68 (ie within six months or as soon as practicable thereafter), or risk costs deductions in successful infringement proceedings.

The scope of the exclusive licence may mitigate any deduction if the patentee is also granted the right to bring infringement proceedings (or not precluded from doing so).

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In addition to preventing costs deductions in infringement proceedings, registration of exclusive licences also:

  • provides notice to third parties of the exclusive rights, and
  • can result in time and costs savings in perfecting the "chain" of transactions where registering a later exclusive licence.

Note (unusually for a discretionary costs awards) both parties were granted leave to appeal to the Court of Appeal.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.