Selected links from last (couple of) weeks

Here is a selection of links to IP-related matters I found interesting this past week (or two):

Patents

Trade marks

Copyright

Not categorised

I hope you find some interesting. If you did or have a question, leave a comment or send me an email

How long do you have to pay royalties for?

Vickery J in the Supreme Court of Victoria has had to construe how long an obligation to pay royalties under a sale of patents and technology and associated consultancy agreement lasts: ruling it is as long as the purchaser is using the “invention”.

Roberts came up with the “Roberts Differential Lock”. It enables the driver of a vehicle, such as a 4-wheel drive vehicle, to lock the “dif” from the cabin without having to get out and manually adjust the wheels. The invention could be retrofitted to existing vehicles. Roberts made a provisional patent application for his invention in 1983 and a standard application followed in 1984. Corresponding applications were made in the USA, the UK and Japan in 1985. Roberts and his wife marketed the Roberts Differential Lock though their company, Altair.

In 1987, the Roberts and Altair sold all their rights in the invention to ARB. There was a lump sum payment and royalties to be paid on products made using the invention. Roberts also entered into a Consultancy Agreement for an initial period of 6 months and thereafter until terminated on 30 days’ written notice.

There were two questions before Vickery J:

(1) did ARB have to keep paying roylaties after (presumably) the (1984/1984) patents expired; and

(2) if so, to whom – the Roberts or also Altair?

The terms of the sale agreement

 2. In consideration of the consideration set out in clause 7 of this Sale Agreement and subject to clause 20 hereof, the Vendors hereby jointly and severally sell transfer and assign absolutely to [ARB] all the right title and interest in and to the Roberts Differential Lock including (without limiting the generality of the foregoing) all patent applications, patent rights and proprietary rights relating thereto, and the business name ‘Roberts Diff-Lock’.

11(a). In further consideration of the rights granted hereunder the Company shall pay to the Roberts the following royalties calculated on the net invoice value arising from the sale, lease, hire and use (hereinafter referred collectively as a ‘sale’ or ‘sold’ as the case may be) of the Products by the company and its licensees:-

[a specified dollar amount for each unit sold]. (Those amounts were subject to increase according to increases in the CPI – All Groups Index – Melbourne.)

For this purpose, “Products” were defined to mean:

‘Products’ means the differentials as manufactured pursuant to the patents as specified in the First Schedule

and the First Schedule listed the 1984 Australian patent application and the pending applications in the USA, the UK and Japan – none of which had been granted at that time.

How long?

You will have noticed that clause 11(a) does not say anything about how long the obligation to pay royalties lasted. Vickery J held as a matter of construction the obligation did not end when the “patents”[1] expired. A number of factors led to his Honour’s conclusion.

First, when the sale agreement was executed, the patent terms in the different countries where applications were pending were different. Moreover, as is typical in such agreements, the definition of “patents” extended to divisonals, re-issues, continuations, continuations in part and the like. So, his Honour concluded, the parties contemplated that there would be potentially be different expiry dates in different countries.

Secondly, although the obligation to pay royalties was imposed on sales of Products, what was sold by clause 2 were “all rights in and to the Roberts Differential Lock including … the patents and the proprietary rights relating thereto”. Then “proprietary rights” were defined not just as rights in patents, but also included copyright, confidential information, trade secrets, data, formulae and so on. So ARB was not just buying rights to the patents it was buying all rights to all the technology. Moreover, under the Consultancy Agreement, “all inventions, techniques and improvements developed in the course of the consultancy agreement ‘shall become the sole and exclusive property of ARB …’”

Together, these arrangements indicated the “ambulatory nature” of the proprietary rights ARB obtained.

Thirdly, if ARB was right and its obligations extended only to the “patents”, it had no obligation to pay royalties until at least one of the pending applications was actually registered. However, Vickery J considered it quite clear the obligation to pay was intended to apply to all products ARB sold as soon as the sale took effect whether an application had proceeded to grant or not.

Finally:

109 Further, the object and purpose of the Sale Agreement may be said to be the allocation of the risks and rewards of the patent rights and the proprietary rights to be assigned to ARB by the Vendors. The risk allocation was achieved by means of the mechanism selected for determination of the price to be paid for that assignment.

110 I accept that the Vendors’ construction is commercially sensible in that it provides for an arrangement whereby each party managed its risk as to the proper price to pay (from ARB’s perspective) and to charge (from the Vendors’ perspective) in relation to the bundle of rights sold under the Sale Agreement, which at the time of entry into the contract had a value which was difficult to calculate or even estimate. Accordingly, the Sale Agreement provided for an ambulatory consideration through the royalties regime. If the rights proved to be valuable so that commercialisation of them resulted in a higher number of total sales than anticipated, then ARB would pay a higher total purchase price to the Vendors. On the other hand, if the rights proved to be valuable so that commercialisation of them resulted in a higher number of total sales than initially expected, then ARB would pay a higher total purchase price to the Vendors.

111 I also accept that such a risk-sharing arrangement is not one that had any obvious connection to the life of the patents that might be granted on the assigned patent applications, or to whether any patents became registered at all. In this regard the following is to be noted:

(a) ARB received an immediate and continuing benefit from the sales that it made using the assigned patent rights. In other words, the benefits that ARB received were not contingent upon any patent application listed in the First Schedule of the Sale Agreement proceeding to grant; and

(b) the assigned rights included proprietary rights which did not depend upon a patent proceeding to grant or remaining registered.

Vickery J then rejected ARB’s argument that it would be faced with a perpetual obligation to pay royalties: its obligation was to pay only on products that embodied the invention described in the patents. If it didn’t use that invention, it had no obligation to pay.

Pay the royalty to whom

This is one of those odd arguments where ARB was trying to contend Altair, the Roberts’ company, had no standing to sue. While cl. 11 did say that ARB had to pay “the Roberts”, Vickery J noted that the Roberts and Altair were the “Vendors” as defined and so cl. 11 should be understood as requiring payment to all three.

The conclusions reached by Vickery J, assuming there is no successful appeal, may immediately be contrasted with Maggbury Pty Ltd v Hafele Australia Pty Ltd.[2] One obvious point of difference, is that it appears that patents did actually issue in this case. Moreover, it appears that there was, or may have been, further technology of value apart from the patents – such as copyright, confidential information and further improvements.

The conclusion may also seem at odds with the policy in s 145 of the Patents Act. Even at its strongest, however, that only gives a right to terminate and does not automatically terminate the contract. As we have recently seen, however, the operation of the provision, particularly in a multi-jurisdictional context involving many faceted technologies, is less than clear.[3] In any event, ARB did not invoke the provision and it is not clear from the judgment whether there are other patent, or for that matter other “proprietary”, rights still on foot.

Nonetheless, if ARB could terminate the contract, it is an interesting question how Vickery J’s approach would sit with Maggbury if ARB used only technology now in the public domain.

Finally, as I am sure you have already concluded, if you are acting for the payor in this type of situation this case illustrates the importance of considering very carefully and providing specifically in the agreement for the duration of the obligation to pay royalties and what it is payable on if you are drawing a clause providing for a royalty – especially when the technology comes into the public domain and others may use it royalty free.

ARB Corporation v Roberts & Ors [2014] VSC 495

Lid dip: James McDougall


  1. That is, the patent applications that were pending when the sale agreement was executed.  ?
  2. (2001) 210 CLR 181.  ?
  3. MPEG LA, L.L.C. v Regency Media Pty Ltd [2014] FCA 180  ?

A lamp lens too far

The fifth decision under the “new” Designs Act 2004 illustrates the operation of that old principle: in a crowded field, small differences may be enough to confer validity, but equally small differences in the accused products will be sufficient to avoid liability.
You will recall that LED Technologies successfully sued Elecspess (and others) for infringing LED’s registered designs for a dual lens lamp, ARD 302359, and a triple lens lamp, 302360 (links to those decisions via here). Well, LED fell out with its Chinese manufacturer, Valens, and found itself a new supplier. Valens, however, didn’t take things lying down and started supplying another of LED’s competitors, Baxter.
As in the earlier case, Baxter challenged the validity of the earlier design; this time arguing that the Statement of Newness and Distinctiveness was unclear and also relying on some different prior art.
The first objection failed.  The perspective view for the two-lens design looks like this:

 

ARD 302359

The Statement of Newness etc. etc. read:

Separate clip in lenses. Base to take a variety of 2, 3 or 4 combination of lenses for stop, tail, indicator, reverse LED lenses, no visible screws.

At [85], Finkelstein J accepted that the Statement of Newness etc. etc. could have been “better expressed”, but it sufficiently clear and succinct:
…. In my view the statement indicates clearly to the relevantly informed addressee (and probably to anyone familiar with the English language) that the base could be manufactured to take a number of lenses. Reference to “separate clip in lenses”, when read with the phrase “no visible screws”, indicates that the lenses clips in and are not held in place by screws. There is nothing relevantly uncertain contained in the statement. 

There were important visual differences between LED’s designs and the closest prior art. For example, at [104]:
the base of the Rubbolite lamps appeared to provide individual frames for each lens, which is not a feature of the registered designs. … the corners of the Rubbolite lens appeared sharper or squarer than the registered designs but said the difference was minor. … there was a noticeable ledge or lip around the lens (which he referred to as the “lens housing”) which was not shown on the registered designs. The ledge or lip around the lens on the Rubbolite lamps tapered inwards which made it substantially different in appearance when looked at from the side. 

Hence, the registered designs were valid.
Unfortunately (for LED), before Valens started supplying Baxter, it had made some changes to the product. As a result, the products supplied to Baxter were not substantially similar in overall impression to the registered designs. Finkelstein J accepted [105] that there were similarities between the products imported by Baxter and the registered design.  Many of them, however, “were common in the prior art”. Moreover:
[106] There are, to my mind, several important features that lead me to the conclusion that the Baxters lamps are not substantially similar in overall impression to the registered designs. The key features are the prominent cut out pattern on the underside of the designs, which is to be contrasted with the flat closed backs of the Baxters lamps, and the square lenses of the designs having a wide landing between them while the Baxters lights have no landing. Of less significance are the long sides of the frames of the registered designs which have raised edges resulting in a counter-sunk appearance, which is not present on the Baxters lamps. As well, the short sides of the frames of the registered designs are raised at their outer portions and dip down in the central portion, which is not a feature of Baxters’ design. 

[107] Moreover, in my view, it is these features that distinguish the registered designs from the prior art such as to admit of the conclusion that the registered designs are new and distinctive. 

Inducing breach of contract

An interesting twist to this case, was that LED also tried to “get” Baxter for inducing the (ex-) Chinese supplier, Valens, to breach its contract with LED.

Essentially, LED argued it had agreed with Valens that Valens would not supply anyone else in Australia or New Zealand with products made using the moulds for the products supplied to LED. The evidence on this point was less than ideal, with the judge being rather critical of the witnesses. There was also a dispute between LED and Valens over who owned what. Ultimately, his Honour accepted that there was a deal that LED would be supplied exclusively for Australia and New Zealand so the supply of products to Baxter was in breach of the agreement. However, Baxter itself did not procure the breach: Baxter did not know Valens was re-using the moulds: to the contrary, it was paying Valens for new moulds.

It is rather hard to reconcile the story in Elecspess on how the designs came into existence and came to be manufactured with the evidence in this case. Of course, as the parties in the two cases are different, each must be decided on its own evidence. I guess, in terms of ownership of the registered designs, there is commonality in that LED’s principal, Mr Ottobre, was the author of the original conception. Matters get rather murky after that.  At [30], LED apparently started selling the lamps made by Valens in “early 2004”, but the priority date of the designs is 22 June 2004.

LED Technologies Pty Ltd v Roadvision Pty Ltd [2011] FCA 146

Uni of WA v Gray

The Full Court (Lindgren, Finn and Bennett JJ) have dismissed the University’s appeal against the trial judge’s (the then French J) findings that the University did not own the targeted microsphere technology inventions Professor Gray made (partly) while a professor at the Uni.

The full 380 paragraphs – University of Western Australia v Gray [2009] FCAFC 116

Lid dip @pofip

Confidentiality, unconscionability and contract

Telstra and Optus have an interconnect agreement, in part to regulate how callers originating from one network get delivered to the other, charges and the like.

Optus successfully sued Telstra for misusing Optus’ confidential information under the agreement: information about call traffic between the two networks.

(You should look at that judgment as it illustrates the two-edged nature of many definitions of confidential information.)

In this part of the fight, Edmonds J declined to grant relief under the equitable obligation of confidence as the contractual obligations in question were comprehensive.

His Honour also explored the meaning of the prohibition on unconscionable conduct in s 51AA of the TPA, but declined to find a contravention in that context.

Optus Networks Ltd v Telstra Corporation Ltd (No. 3) [2009] FCA 728

Terms of Service Tracker

The blogosphere ‘lit up’ and Facebookers (?) went on the rampage when it emerged that Facebook was unilaterally changing its terms of use (and not telling anyone) – Facebook: All Your Stuff is Ours, Even if You Quit.

Jonathon Bailey at Plagiarism Today looks at the EFF’s new TOSBack so you can keep up to date with how your service provider is “shifting the goalposts”.

Google, for example, amongst other things insidiously changed “Terms of Service for Blogger.com” to “Blogger Terms of Service”. (Vote of thanks to whichever Supreme Being I’m following today that I don’t use Blogger!)

All joking aside (and remembering the outrage at Facebook – hope Twitter doesn’t own all my tweets?), this could be a very practical tool.

p.s. Facebook did allow its outraged users to set up a community on Facebook to campaign against the change.

Acceptance by email

Logan J expresses the view, which in the end wasn’t necessary for his decision, that the instantaneous communication rule applies when considering when and where the acceptance of an offer by email occurs. That is, his Honour would employ an analogy to telexes – the place where the message is received; not the postal rule the time and place where the letter was posted.

25.  Flottweg’s acceptance was communicated by email to Olivaylle at its olive grove in Victoria. Experience suggests that email is often, but not invariably, a form of near instantaneous communication. The parties seemed content to assume that the place of contract was either Victoria or New South Wales, content because the common law of Australia was the same in either place and so, too, was the only statute law considered material. There was no suggestion in submissions that the place of contract was, for example, Germany. As a result, the ramifications of the adoption by the parties of email for their written pre-contractual communications, particularly the acceptance, were not explored. As it happens, the subject of formation of contracts by email has been explored in depth in an article by a local academic, Christensen S, “Formation of Contracts by Email Is it Just the Same as the Post?” (2001) 1(1) Queensland University of Technology Law and Justice Journal 22. Ms Christensen details there arguments for and against the assimilation of email communications with “the postal rule” or with what one might term “the instantaneous communication rule” and also the local adoption of international convention which touches on the subject. Having regard to the position taken by the parties in this case, it is not necessary to give detailed consideration to the point. It is enough to observe that I consider that there are analogies to be drawn with the way the law developed in relation to telex communications in an earlier era where what I have termed “the instantaneous communication rule” came to be adopted, perhaps at the expense of scientific precision but not so in relation to common commercial understanding. Thus, by analogy with cases concerning the position with what were, or were treated as, other forms of instantaneous communication, I consider that the contract was made where the acceptance was received, ie in Victoria: Entores Ltd v Miles Far East Corporation [1955] 2 QB 327; W A Dewhurst & Co Pty Ltd v Cawrse [1960] VR 278; Express Airways v Port Augusta Air Services [1980] Qd R 543; Reese Bros Plastics Ltd v Hamon-Sobelco Australia Pty Ltd (1988) 5 BPR 11,106.

Olivaylle Pty Ltd v Flottweg GMBH & Co KGAA (No 4) [2009] FCA 522

Lid dip Inchoate.

This seems eminently sensible in many situations, but could well prove rather random. Suppose you’re travelling from INTA and you get the email on your Blackberry (or that other phone) at LAX. Contract governed by the laws of California?