Thursday, 15th March, 2012

Courts slam agreement drafting in patent licensing

Both parties to a patent licence or assignment agreement need to make sure the agreement accurately describes the rights being licensed or assigned.  If not, one party may hand over more than it intended and the other may find it is captured by far broader obligations than it intended.

Recent US and UK cases have emphasised the importance of understanding the relevant patent rights when describing those rights in an assignment or licence agreement.   

Getting things right for patent owners

Agreements to licence or assign patents commonly describe those rights by reference to 'rights in the inventions described in' a patent or patent application that is identified by its reference number.  In two recent US cases, this type of description resulted in the patent owner assigning or licensing much more than it intended. 

MHL Tek, LLC v Nissan Motor Co. involved an assignment of "the entire right, title and interest ... in and to the inventions and discoveries in the" specified patent application. The court found that this description included a patent that was not identified in the assignment and was not directly related to the application that was identified in the agreement (as a divisional or continuation). The description was found to "reasonably convey to those skilled in the art", the invention claimed in the second patent.  Therefore, despite not being expressly identified or intended to be assigned, the assignment was found to include the assignment of the second patent.

It is worth noting that this case arose out of a falling out between the parties following the breakdown of a joint development agreement.  To some extent, the dispute could have been avoided or minimised if the parties had, at the outset of the development agreement, agreed on the disposition of intellectual property on the wind-up of the joint development. 

The similar case of General Protecht Group, Inc. v Leviton Manufacturing Co., Inc. involved a settlement agreement in which Leviton agreed not to sue for infringement of two patent applications identified in the agreement. The agreement expressly provided that the obligation not to sue would not apply to any other patent, including any patents issued after the date of the agreement. Despite this, the court found that the obligations not to sue applied to two continuations of the identified patents.  A continuation is a mechanism used to progress applications through the US patent examination process. As the name suggests, it is a 'continuation' of an earlier patent and has the same specification, the same priority date and at least one common inventor as an earlier application. Commonly, the claims in the resulting granted patent will be narrower than the claims in the original application and that was the case for the Leviton continuation.

The court's view was that the licensees would not have been able to obtain the benefit of the original bargain struck if they were prevented from exercising rights in the continuation. This was despite the narrower claims in the continuation and the fact that the continuation issued after the date of the agreement. If the licence was not intended to apply to continuations, the parties should have clearly set that out in the agreement.

Getting things right for licensees

An imprecise description of patent rights in a licence agreement is not always good for the licensee.

The UK case of Oxonica v Neuftec involved, what the court described as, a poorly drafted patent and know how licence under which royalties were to be paid on sales of products 'falling within the scope of the claims in Licensed Application or Licensed Patents'.  The 'Licensed Application' was a PCT application that included claims describing a relatively broad range of products. The Licensed Patents were any granted patents resulting from the PCT application and, in Europe and other jurisdictions, those granted patents described a narrower range of products than the PCT Application. 

Oxonica argued that the royalty obligations could not apply in relation to the products it developed that were not covered by any granted patent.  However, the court found that the royalty obligation applied to products that fell within the broad scope of the PCT application, regardless of those products not being covered by any granted patents. 

Summary

All three cases emphasise that, when drafting agreements dealing with patent rights, it is important to understand exactly what rights are being assigned or licensed and to make sure that those rights are accurately described. If not, parties can find that they have handed over more, or are subject to broader obligations, than they would have otherwise intended.