When is an exclusive licence not an exclusive licence?

In IP Draughts’ experience, clients sometimes query the use of the term “exclusive” in licence agreements. Different questions arise. Below are some of them, and IP Draughts’ short-form answers (good enough for a rough guide, but more work is required when considering the quesiton in an individual case).

What does “exclusive” typically mean in a licence agreement?

  • Does it mean that the licensor is not allowed to exploit the IP within the scope of the licence? Yes.
  • Does this need to be stated explicitly (eg through the use of a phrase such as “even as to the licensor”)? No, though IP Draughts would sometimes define exclusive, particularly if the parties have a different view of the world, or there is an EU element (see below).
  • Can you divide up the fields in which the IP is to be commercialised, and grant exclusive licences in separate fields under the same IP? Yes
  • If a licensee sells a licensed product for use in its field, but the purchaser (or a purchaser from that purchaser) uses it outside the field, can they be prevented from doing so and is the licensee in breach of their licence? Difficult legal issues, but often no.
  • Can you grant exclusive licences in different territories under essentially the same IP? Yes.
  • Does this mean that the licensor guarantees that no-one else (eg another licensee) will exploit in the licensed territory? No, particularly in the EU where passive sales by other licensees are allowed.
  • Does this mean that the licensee promises not to sell outside its licensed territory? No, particularly in the EU where passive sales outside the territory are allowed.

Meaning of exclusive in the (UK) Patents Act 1977 (“PA”)

Under the PA, an exclusive licensee has the right to bring proceedings against infringers in its own name. Exclusive licensee is defined in the PA, but only for the purposes of clarifying who has the statutory rights of an exclusive licensee – there is no general assumption that this definition is relevant when interpreting licence agreements. Section 130 of the PA provides:

‘exclusive licence’ means a licence from the proprietor of 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, and ‘exclusive licensee’ and ‘non-exclusive licence’ shall be construed accordingly.

A recent case in the English High Court explores what this definition means, and in particular whether a licence that is stated in a licence agreement to be “exclusive” is, in fact an exclusive licence for the purposes of the PA.

The decision in the case of Oxford Nanopore Technologies Ltd & Anor v Pacific Biosciences of California, Inc & Anor [2017] EWHC 3190 (Pat) was published on 14 December 2017. It is a decision of a (part-time) deputy judge, David Stone, who is a solicitor and a partner at Allen & Overy. The deputy judge reviewed the limited case law in this area, including the recent case of Illumina Inc and Ors v Premaitha Health PLC and Anor [2017] EWHC 2930 (Pat), which this blog discussed here. And, helpfully, he came up with 10 propositions in light of that case law and his assessment of the law, which are reproduced below:

i) Whether or not a licence is an exclusive licence for the purposes of section 67(1) of the Patents Act is a matter for English law: Dendron, paragraph 9;

ii) A licence which purports to be an exclusive licence may not necessarily be so. Identifying an exclusive licence depends on a proper construction of the document or documents: Dendron, paragraph 9. An exclusive licence will be expressly so: circumstances in which an exclusive licence will be implied will be rare, if they exist at all;

iii) It is for the party asserting that it is an exclusive licensee to demonstrate that it is: Dendron, paragraph 9;

iv) The assessment of whether or not a licence is exclusive is not a “once and for all assessment”: Dendron, paragraph 11. An exclusive licence may confer upon the patentee a power to convert the licence into a non-exclusive licence: Dendron, paragraph 11;

v) The “essential element” of an exclusive licence is that is it a licence to the exclusion of all other persons, including the patentee or applicant: Dendron, paragraph 11;

vi) It is possible to have a plurality of exclusive licences in respect of any one patent: Courtauld’s, page 210; Illumina, paragraph 475;

vii) But each 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: Illumina, paragraph 254;

viii) An exclusive licensee may grant sub-licences to “persons authorised by him”: Dendron, paragraph 11; Illumina, paragraph 254;

ix) There is a distinction to be drawn between a licence and an equitable right to call for a licence: Courtauld’s, page 210; and

x) Where an equitable right to call for a licence is conditional (as it was in Illumina – the Hong Kong Government had to satisfy itself that the public mission of the Commissioner needs to be fulfilled, or that it is in the public interest to request the licence), the otherwise exclusive licence will remain exclusive unless and until the contractual conditions are fulfilled that enable the grant of the licence: Illumina, paragraph 476.

An interesting point of detail mentioned in this case, that IP Draughts had not previously spotted, is that in the Illumina case, Carr J had held that where an academic licensor reserves rights to use the licensed IP for academic research and publication, this does not prevent the licence from being an exclusive one. At paragraph 475 of the Illumina judgment, as reported in Oxford Nanopore, Carr J said:

475. Premaitha argued that since CUHK had reserved rights to use and develop Lo 2 and Lo 3 for academic research and publication at all times, the licence was not exclusive to Illumina. My conclusion on this issue is the same as in relation to the Quake Patents. The reservation does not extend to authorisation of any third party for commercial purposes. The licence [is] an exclusive licence of the right to exploit for commercial purposes and, according to section 130(7) [Stone: I think this was a reference for section 130(1)] an exclusive licence may be in respect of any right.

David Stone

This conclusion, which was focussed on whether a licence was exclusive for statutory purposes, may also be persuasive when considering the contractual issue, ie whether it is appropriate to describe a licence as exclusive when the licensor reserves rights of this kind.

IP Draughts admires the way in which David Stone has reduced the previous case law to a series of propositions, and hopes that we will see many more decisions by this talented judge in the field of IP agreements.

 

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Filed under Contract drafting, Intellectual Property, Licensing

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