Really, don’t make Affiliates a contracting party

The third most popular article on this blog, Don’t make Affiliates parties to the agreement, has been viewed approximately 20,000 times since it was published in 2014.

That article discussed why, in IP Draughts’ view, it is bad drafting practice to define a contracting party, for example in a licence agreement, as “X (together with its Affiliates)”. Now we have another reason for avoiding this pernicious, thoughtless usage.

The English High Court case of Illumina, Inc v Premaitha Health Plc [2017] EWHC 2930 (Pat) was published last month. Thanks to Mark Robinson for alerting IP Draughts to the case on Twitter.

At paragraph 242 onwards, the judgment discusses whether Illumina was an exclusive licensee of a patent and had standing to sue an infringer of that patent.

Section 67(1) of the (UK) Patents Act 1977 provides:

Subject to the provisions of this section, the holder of an exclusive licence under a patent shall have the same right as the proprietor of the patent to bring proceedings in respect of any infringement of the patent committed after the date of the licence; and references to the proprietor of the patent in the provisions of this Act relating to infringement shall be construed accordingly.

Section 130 of that Act defines exclusive licence as:

a licence from the proprietor or applicant for a patent conferring on the licensee, or on him and persons authorised by him, to the exclusion of all other persons (including the proprietor or applicant), any right in respect of the invention to which the patent or application relates.

The court was asked to consider whether an exclusive licence granted to Illumina “and its Affiliates” was an exclusive licence within the meaning of sections 67 and 130 quoted above. Illumina argued that, in practice, all the Affiliates were under the control of Illumina. After considering the evidence and some prior case law, the judge, Mr Justice Carr, concluded at paragraph 254 that Illumina was not an exclusive licensee for the purposes of section 130 and therefore did not have title to sue an infringer, though the patent owner did:

Accordingly, a licence is only exclusive under section 130(1) if it is granted to a single person, although he may grant sub-licences to “persons authorised by him”.  The PPA does not comply with this definition, as it is a licence granted by the proprietor to a number of persons, even though one of them is in de facto control of the others.

This problem could have been avoided if the parties had not included Affiliates within the scope of the licence, and had instead given Illumina the right to sub-license its Affiliates. This is, in any case, the preferable way of extending a licence to Affiliates, for the reasons stated in IP Draughts’ earlier article.

That article did not mention standing to sue as a reason for avoiding the “and its Affiliates” usage. But we can now add that reason to the list.