You can arbitrate disputes under an IP licence agreement

Hamerschlag J, in the New South Wales Supreme Court, has ruled that disputes between a licensor and licensee under a technology licence agreement fall within the arbitration clause in the agreement and, consequently, the arbitrator’s determination that he has jurisdication is valid and binding on the parties.

The disputes between the parties related to (1) the application of the “improvements” clause and (2) whether licence fees would be payable if the licensee embarked on different strategies in the future. Hamerschlag J rejected the licensor’s, Lardken’s, argument that neither of the matters were disputes within the scope of the arbitration clause, cl. 19(b):

(b) All disputes arising in connection with this Licence, which are not adjusted by Licensing Agreement between the parties concerned, shall be finally settled by arbitration. The arbitration shall be held before a single arbitrator appointed by the parties or in the absence of agreement by the Chair of the Law Society of New South Wales, and conducted in accordance with and under the Commercial Arbitration Act 1984 of New South Wales. Judgment upon the award rendered may be entered in any court having jurisdiction, or application may be made to such court for a judicial acceptance of the award, or an order of enforcement as the case may be.

The improvements clause

Lardken licensed Lloyd to use Lardken’s technology relating to methods of collecting energy, converting it to heat, transferring the heat energy to a storage medium based on graphite and extracting and releasing the heat energy into useable form.

The licence agreement had one of those “Improvements” clauses, cl. 5.4(a), by which Lloyd agreed to transfer ownership of any improvements in the technology it developed to Lardken and would receive a non-exclusive licence back.

A third party, Ausra, applied for patents in the USA and Australia. Lloyd had notified Lardken about these applications, but had settled a dispute with Ausra on terms that Ausra assigned its rights in the patent applications to Lloyd. Lardken claimed that “Ausra’s” patent applications had been developed from confidential information about Lardken’s technology which, it was alleged, Ausra accessed at Lloyd’s facility. Lardken also claimed it was entitled to ownership of patent applications filed by one of Lloyd’s subsidiaries, Solfast.

Lloyd denied that any of this technology were improvements within the meaning of the licence agreement and, when Lardken refused to agree, referred the matter to arbitration.

Lardken argued that these disputes were not capable of determination by the arbitrator as a matter of public policy as only the Commissioner of Patents had authority under the Patents Act to grant patents or, subject to appeal to the Court, determine who was an entitled person under s 15 and s 32 and s 36.

Hammerschlag J held that the issue between the parties was a dispute about whether the Ausra or the Solfast technology fell within the terms of cl. 5.4(a). That was a dispute falling within the scope of the arbitration clause. The arbitrator’s decision would not, and could not, affect the Commissioner’s determination whether to grant the patent applications or not. The Commissioner’s powers under ss 15, 32 and 36, to determine entitlement, were not exclusive: questions of assignment for example were regularly determined in other fora. All the arbitrator’s decision would do would be to decide rights and obligations as between Lardken and Lloyd.

The liability to pay licence fees

Lloyd also sought the arbitrator’s ruling that it would not have to pay additional licence fees if:

  1. it itself constructed something using Lardken’s technology; or
  2. it sub-licensed one of its subsidiaries to construct something using Lardken’s technology.

Lardken argued the dispute about Lloyd’s potential liability to pay royalties in the future was not a ‘dispute’ capable of arbitration. There was, as yet, no “live issue” between the parties, it was really an attempt to seek an advisory opinion about a hypothetical eventuality.

Hammerschlag J also found that this was a dispute covered by the arbitration clause.

When Lloyd had written to Lardken stating its interpretation of the licence agreement, Lardken had responded disagreeing. Thus, at [101]:

There is thus clear disagreement between the parties on matters arising in connection with the Licensing Agreement. Each has claimed that the Licensing Agreement operates in a way which the other disputes; see Halki Shipping Corporation v Sopex Oils Ltd [1998] 1 WLR 726 at 757. See also the incisive discussion as to what constitutes a dispute in Tjong Very Sumito v Antig Investments at 747 and following, and Sutton et al, Russell on Arbitration , 23rd ed (2007) at [5-003].

Further, that fact that there was an element of futurity about the liability to pay did not render it purely abstract or hypothetical. Hammerschlag J accepted that purely hypothetical matters may not qualify as ‘disputes’, At [104]:

Although both of these disputes involve an element of futurity they are not purely abstract or hypothetical in the sense which makes them incapable of being the subject of determination. They concern whether certain prospective conduct will result in liability to pay fees under the Licensing Agreement (or put another way whether in the event of that conduct occurring the failure to pay would be a breach of contract). It was not suggested that the prospect that that conduct would occur was fanciful.

In reaching this conclusion, his Honour noted that declarations could be granted by the Court in similar situations:

98. In The Commonwealth v Sterling Nicholas Duty Free [1972] HCA 19; (1972) 126 CLR 297 at 305 Barwick CJ said:

The jurisdiction to make a declaratory order without consequential relief is a large and most useful jurisdiction. In my opinion, the present was an apt case for its exercise. The respondent undoubtedly desired and intended to do as he asked the Court to declare he lawfully could do. The matter, in my opinion, was in no sense hypothetical, but in any case not hypothetical in a sense relevant to the exercise of this jurisdiction. Of its nature, the jurisdiction includes the power to declare that conduct which has not yet taken place will not be in breach of a contract or a law. Indeed, it is that capacity which contributes enormously to the utility of the jurisdiction.

Hammerschlag J did note, however, it was a matter for the arbitrator’s discretion whether or not to make a determination on the issue.

The judgment doesn’t say how much it would cost to build one of these plant, but one might well think it makes sense for a party to be able to find out in advance what, if any, licence fee would be payable before it had committed to, or incurred, the expense of building the plant.

Larkden Pty Limited -v- Lloyd Energy Systems Pty Limited [2011] NSWSC 268

Lid dip: Steve White

Electronic filing / service in the Office (IP Australia)

Patentology looks at the problems that arise with serving documents in Opposition proceedings before the Commissioner / Registrar (i.e. IP Australia) (a) electronically and (b) outside business hours.

Obviously (well, not so obviously when you’re used to dealing with the pragmatic approach of the Federal Court), if the material is served outside business hours, it is not served until the next business day, but it may be even more complicated if you are trying to effect service electronically.

All very quaint and so 19th century, but fatal!

The rules are rather different than, for example, the postal rules which apply in a contractual relationship; but it isn’t really a contractual relationship.

Where personal service is not required, the Federal Court Rules (O7 r4 and 4A) permit service by document exchange, facsimile or email, however, they (O7 r7) require that the party on whom service is to be effected to have specified the facsimile number or email address to have been specified in a Notice. O7 r4 and 4A also make provision for the time of service. I suspect, however, that these are deemed times of service which would be displaced if one could prove an earlier time of service.

IPSANZ Annual Conference

IPSANZ’ Annual Conference is on over the weekend beginning 10 September, at Noosa.

Apparently, there are still some places available.

From the USA, Judge Kathleen O’Malley and Covington & Burling’s George Pappas are the headline speakers.

Siobhan Ryan and I will be talking on aspects of trade marks’ use in the trade marks session.

Injurious falsehood and also passing off

The tort of injurious falsehood (sometimes called malicious falsehood or even trade libel) has been largely superseded (but not totally extinguished) by passing off and the modern wrongs against misleading or deceptive conduct. In a helpful, practical primer, Jagot J has had to explore its operation as one of the issues in the Jack Brabham Engines case. There is also an elementary lesson to learn in passing off.

In overview, the case concerned 2 rival businesses engaged in developing car engines. They agreed to pool their resources and develop technologies through a new corporate vehicle, Jack Brabham Engines (JBE). The principals in the competitors became directors and shareholders and the great man himself was a shareholder. Things didn’t work out and one of the principals, Mr Beare, who had secured patents for technology he had developed earlier decided to invest elsewhere in competition with JBE.

Amongst other things, he published statements on his website and in ASIC documents which the applicants complained were injurious falsehoods. Jagot J rejected these allegations.

Her Honour pointed out at [246] that the tort required proof of 3 ingredients: proof that (1) the respondent has made a false statement, (2) that the respondent made the statement maliciously and (3) as a result the applicant has suffered actual damage.

Her Honour quoted Gleeson CJ on the difference between the tort and defamation:

The tort of defamation protects reputation, and it does so in a manner that involves a balancing of various considerations including the right of free speech. The tort of injurious falsehood protects against provable economic loss resulting from false and malicious statements.

Jagot J at [247] also endorsed the statement in Halsbury’s Law of Australia as a convenient summary of what is required for the statement to be malicious:

The false publication must have been made maliciously. A person who acted in good faith is therefore not liable. Malice is a question of motive, intention or state of mind and involves the use of an occasion for some indirect purpose or indirect motive such as to cause injury to another person. Malice may exist without an actual intention to injure. Malice may not be inferred from the fact of publication but will be inferred where the false publication was made with:
(1) an intent to injure without just cause;
(2) knowledge of their falsity; or
(3) reckless indifference to its truth or falsity.
No action will lie where the false publication was made with mere lack of care or with an honest belief in its truth. An honest belief in the truth of the statement will rebut any inference of malice.

The applicants failed on all heads for a wide variety of reasons. Some of the statements were not even pleaded. The applicants failed to prove that others were even false and, at every turn, the statements were not shown to be malicious because they were the honest beliefs or opinions of Mr Beare. There was also no proof of damage.

The difficulties of proving malice in particular highlight why, if the conduct is in trade or commerce, the tort has largely been supplanted by the fair trading laws such as  s 52 (in the case of corporations) and s 9 / s 42 (in the case of individuals).

The applicants also alleged passing off from use of the names “Beare Technology Engine” and “Beare Head Technology”. The names were not registered as trade marks, hence any rights had to arise at common law.

The problem for the applicants here was that Mr Beare had used these names in his business before JBE was incorporated and, while he or his company had authorised JBE to use the names, JBE was unable to identify any assignment of the earlier business and its goodwill to JBE. As a result, JBE did not own the relevant reputation.

Jack Brabham Engines Limited v Beare [2010] FCA 872

Taking genuine steps to resolve before going to court -corrected

The Commonwealth Attorney-General introduced the Civil Dispute Resolution Bill 2010 into Parliament today which, if enacted, will require:

  1. applicants in civil proceedings in the Federal Court and the Federal Magistrates Court to file a genuine steps statement before the hearing date specified in the Application when the application is filed (thanks, Tim);
  2. respondents to file a genuine steps statement before the hearing date stating whether or not they agree with the applicants’ statements; and
  3. lawyers to advise people who are required to file genuine steps statements of the requirement and to assist them in complying with their obligations.

A genuine steps statement will not be required where the proceeding relates wholly to “excluded proceedings”: clauses 15 – 17 provide lists of excluded proceedings and a power for regulations to prescribe further proceedings.

An applicant’s genuine steps statement must set out the steps that have been taken to try to resolve the dispute before commencing proceedings or why no such steps were taken.

The Bill does recognise, however, that what will constitute “genuine steps” in any particular case will depend on the circumstances of that case. The EM states in relation to cl. 4:

The Bill does not prescribe specific steps to be undertaken. Rather, it is intentionally flexible to enable parties to turn their minds to what they can do to attempt to resolve the dispute. This is to ensure that the focus is on resolution and identifying the central issues without incurring unnecessary upfront costs, which has been a criticism of compulsory pre-action protocols.

A failure to provide a genuine steps statement would not automatically invalidate the application or defence/response.  However, in exercising its powers in relation to the proceeding, by cl. 11 the court may have regard to whether a genuine steps statement was filed (when required) and whether genuine steps were in fact taken. In addition to referall of the dispute to ADR, the EM at [45] gives as examples of ways the power may be exercised:

  • setting time limits for the doing of anything, or the completion of any part of the proceeding
  • dismissing the proceeding in whole or in part
  • striking out, amending or limiting any part of a party’s claim or defence
  • disallowing or rejecting any evidence, and
  • ordering a party to produce to it a document in the possession, custody or control of the party.

The NADRAC report contemplated that courts might use this information in various ways such as tailored orders for the provision of necessary information without requiring or fostering costly discovery processes. This, and other measures contemplated, are already within the courts’ powers so, at least this far, the bill seems to be an instrument to encourage cultural change. Indeed, this is made explicit in relation to cl. 12 – the court’s powers to award costs:

The court may also have regard to whether a genuine steps statement was filed (when required) and whether genuine steps were in fact taken when exercising its powers to award costs.

Furthermore, the court may order costs personally against a lawyer who fails to comply with his or her duties.

The EM states that these provisions are intended “to bring about a cultural change in the conduct of litigation so that parties are focused on resolving disputes as early as possible.”

Clause 14 seeks to preserve the “without prejudice” privilege for negotiations to settle.

So far as IP goes, “ex parte” applications are within the definition of “excluded proceedings”, so some Anton Piller and Mareva situations will not be affected. IP litigation is usually preceded by letters of demand. This (and the resulting rejection) may well fall within, if suitably drawn, the first two or three examples given in cl 4:

  1. notifying the other person of the issues that are, or may be, in dispute, and offering to discuss them, with a view to resolving the dispute;
  2. responding appropriately to any such notification;
  3. providing relevant information and documents to the other person to enable the other person to understand the issues involved and how the dispute might be resolved.

The discussion of these matters in the NADRAC report identifies a tension perceived in the UK between reducing some court backlogs while imposing onerous costs obligations on parties before the litigation commences.

Civil Dispute Resolution Bill 2010 (html) (pdf)

EM (html) (pdf)

Press release

Some further background and consideration of the thinking behind the legislation may be found in the NADRAC report

Served by Facebook 2 – updated with link

The press is reporting that a Federal Magistrate has allowed a child support application to be served on a “Mr Howard” by Facebook.

Following service, “Mr Howard” shut down his Facebook and MySpace accounts.

See the Age, Sydney Morning Herald.

The reports say the judgment was published last month; but I haven’t found a link to it yet.

Byrne & Howard [2010] FMCAfam 509

with thanks to David Starkoff (possibly better known as “Inchoate”).

The Fortnightly Review (of IP and Media Law)

Professors Megan Richardson and Andrew Kenyon and Vicki Huang edit a new online publication “The Fortnightly Review of IP and Media Law”.

So far, it is up to issue #7 and features, amongst other things, a good debate in which Ass Prof. David Brennan responds to Dr Cannold and Prof Palumbi’s opinion piece in the Age on Gene Patenting. Dr Cannold and Prof Palumbi get to reply.

Check it out here (and sign up).

DFAT ACTA consultations

DFAT (the Department of Foreign Affairs and Trade) will be holding “whole of government” consultations on the draft ACTA text on 11 June 2010 in Canberra, commencing at 10.00a.m.

If you’re a stakeholder wanting to be consulted, register by COB 9 June.

For the contact “co-ordinates”, here.

For the draft ACTA text and other interesting ACTA-tidbits, here.

Does the international intellectual property system help or hinder exporters?

Is the question that will be addressed at a 3 hour forum in Melbourne on 25 May 2010, organised by IP Australia.

Three speakers:

Amy Roy, General Counsel of Boost Juice.
Amy will discuss the Boost Juice experience in regards to exporting and protecting their IP overseas. She will also discuss what can be improved from a business perspective to make the IP system easier for exporters to use.

Karen Sinclair, President of the Licensing Executives Society of Australia and New Zealand.
Karen will discuss how the IP system affects the role of an attorney, what works well, what does not work well and the future outlook.

Victor Portelli, General Manager of Patents and Plant Breeder’s Rights at IP Australia.
Victor will discuss the current international IP systems in place, trends in the international environment and possible future developments.

Registration is free and includes lunch.

Details and rsvp here.

Who can enforce a release

Global Brands is still suing YD Pty Ltd. The trial on quantum for infringement of registered design was almost due to start when YD applied to amend.

After YD admitted it had infringed Global Brands’ registered design, YD discovered, over 9 months earlier, that Global Brands had entered into a settlement agreement with Pegasus/Coastal relating to Global Brands allegations that Pegasus/Coastal had infringed the same registered design. The settlement agreement was in fairly typical terms:

the parties (and any related body corporate as that term is defined in s 9 of the Corporations Act 2001 (Cth) (Related Bodies Corporate) hereby permanently release and forever discharge each other, their Related Bodies Corporate, directors, customers, servants and agents from and against all and any claim cause of action liability suit or demand which the parties … have or but for this deed may have had against each other…their customers servants or agents prior to the date of this deed for or in respect of or arising out of the subject matter or the conduct of the proceeding and the cross claim.

YD claims that Pegasus/Coastal supplied the infringing products to it and so it was a customer within the terms of the release. Pegasus/Coastal apparently did not want to become embroiled in the litigation. The amendment was to join Pegasus/Coastal as a respondent and to rely on the release.

Dodds-Streeton J has granted leave to amend, finding that YD although not a party to the settlement deed could rely on it as a special exception to the rules on privity, so long as Pegasus/Coastal was joined as a respondent.

Aon Risk Services was distinguished:

In all the unusual circumstances of this case, including:
the existence of the release, its apparent relevance as the basis for an arguable claim; its relatively circumscribed scope; the respondents’ belated knowledge of the deed and their conduct thereafter; the impact of the decision in Airberg only recently appreciated by the respondents’ counsel; the applicants’ preference that the quantum trial should not proceed if the amendments be allowed; the fact that although the proceeding has been long on foot, there has already been one trial and the parties have apparently acquiesced in various stages of non-progression:
in my opinion, weighing all relevant matters, including the nature and importance of the amendment to the respondents, notwithstanding the delay, wasted costs and prejudice to the applicants (which may not be wholly compensable by a costs order) the respondents’ applications to amend and to join Pegasus should be allowed.

Global Brands apparently denies that YD is a “customer” and, in any event, apparently intends seeking rectification to exclude the term as a “mistake”.

All this has led to the vacating of the trial date.

Global Brand Marketing Inc v YD Pty Limited [2010] FCA 323