Category Archives: Licensing

Article on drafting FRAND licences now published

Back in December, IP Draughts had an article published in the online version of the Journal of Intellectual Property Law and Practice (OUP). The article’s title is How to draft a licence agreement that is fair, reasonable and non-discriminatory: a ten-point plan.

IP Draughts learnt at the weekend that this 10,000-word article has now reached the paper version of the journal. For non-subscribers to the journal, it can be purchased here.

The abstract reads as follows:

The English High Court case of Unwired Planet International Ltd v Huawei Technologies Co Ltd & Anor is of great interest to IP lawyers who advise on standards-essential patents (SEPs), on associated questions of competition law, and on licensing patents on fair, reasonable and non-discriminatory (FRAND) terms. The case is also of interest internationally, partly because there have been relatively few cases anywhere in the world, to date, that provided judicial guidance on legal issues relating to SEPs and FRAND and because this is the first time that an English court has determined a FRAND royalty rate.

This article focuses narrowly on the FRAND aspects of the Unwired Planet case, and on what the case teaches us about how to draft a patent licence agreement that is FRAND. But the discussion is broadened to reflect not only on the licensing of SEPs but also of other types of licence where there is an obligation to negotiate fair and reasonable licence terms, with particular reference to the terms of grant of the European Commission for Horizon 2020 research projects.

This focus results in the author omitting discussion of some points that would be of interest to the lawyer who is running litigation against a user of an SEP (perhaps in parallel with negotiating a FRAND licence with that infringer), or who may be advising on compliance with competition laws in the context of such litigation and negotiations.

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Blast from the past: is software ‘goods’?

Back in the 1980s, when brightly-coloured tracksuits were in fashion, IP Draughts took a part-time course in IT law at Queen Mary University. One of the subjects that he earnestly studied was whether the supply of software amounted to a sale of goods, for the purposes of the Sale of Goods Act 1979.

He was convinced that it didn’t amount to a sale of goods, and he carried this conviction with him into the 1990s, when he wrote his first book, Technology: the Law of Exploitation and Transfer (Butterworths, 1996). The third edition of that work, now called simply Technology Transfer (Bloomsbury, 2010), discusses at pages 461-466 the legal issues involved in this question, and in the related question of whether the sale of a patent could amount to a sale of goods. The discussion briefly mentions the 1995 case of St Albans District Council v ICL, in which the Court of Appeal considered (obiter) that the answer to this question might depend on whether the software was supplied on a disk.

IP Draughts has long felt that this is a ridiculous distinction to make, as the nature of software is not changed by the medium or method by which it is supplied. The value in the software depends on the electronic content, not the piece of plastic on which it is, or not, delivered. However, as mentioned below, this is a distinction that the courts have used to justify their decisions in subsequent cases.

The fourth edition of that book is now being written, and will mention a new case that continues the judicial debate on this subject. The Court of Appeal case of Computer Associates UK Ltd v The Software Incubator Ltd [2018] EWCA Civ 518, appeared on the BAILII website last week. The main question to be decided was whether, for the purposes of EU law on commercial agents, the supply of software (typically by download over the internet) amounted to a sale of goods.

At first instance, His Honour Judge Waksman QC had decided that it did amount to a sale of goods. In the Court of Appeal, Gloster LJ, giving a judgment with which her fellow judges agreed, decided that it did not.

Gloster LJ’s judgment considers certain English, EU and other case law in this field, including the St Albans District Council case. IP Draughts has a great deal of sympathy with Gloster LJ’s comment, at paragraph 45 that:

…I am somewhat uncomfortable with a conclusion that the tangible/intangible distinction leads to a construction of “goods” that excludes the Software, which seems artificial in the modern age. However, I consider this to be justified given the commercial context and notwithstanding the superficial attraction of the respondent’s arguments, which I next consider.

After considering the arguments and case law in further detail, including the fact that the Consumer Rights Act 2015 introduced a new concept of supplying “digital content”, she reaches the following conclusion:

I conclude that the judge was wrong in law in holding that the Software, which was supplied to CA’s customers electronically and not on any tangible medium, constitutes “goods” within the meaning of Regulation 2(1). I would therefore allow the appeal on this issue.





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Potential UN convention on IP licensing

In 2 weeks’ time, IP Draughts will be going to Geneva. The University of Geneva has invited him to give a presentation on IP licensing, as part of an all-day conference on technology transactions, which is jointly sponsored by the university and by LES Switzerland.

Since accepting the invitation, he has learnt that the morning séance is being conducted in English, and the afternoon in French. Thankfully, IP Draughts has been allocated to the morning session. His GCSE French (grade A) is not really up to debating implied terms in licensing transactions. Froggy Hunter (his French teacher; were nicknames ever politically correct?) could have provided language training on this subject, but for some reason it didn’t seem to be a priority in the 1970s classroom. There was more of a focus on not pronouncing faim as femme.

IP Draughts’ talk will propose that the United Nations should develop an international convention on IP licensing, perhaps drawing on some of the approach taken in its existing convention on the international sale of goods. The talk will draw attention to some of the problems with international IP licensing, including:

  • different legal systems approaching the interpretation of licence agreements in different ways, with some countries having limited experience of the subject.
  • different approaches to negotiation and the preparation of agreements in different countries.
  • the use of template agreements of varying drafting quality.

The talk will cite the example of the English High Court case of Unwired Planet v Huawei, where the court scrutinised the terms of a licence agreement between a US company and a Chinese company.
Finally, the talk will mention some areas that the convention might cover, including general principles of interpretation, implied terms, and perhaps even a model agreement.

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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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