exclusive licence

Broadcast does not include internet streaming

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The (NSW) Court of Appeal has rejected WIN’s argument that its exclusive licence to broadcast Nine Network’s content extended to “live streaming” over the internet.

Those of you who have emulated Burke and Wills and wandered out of the CBD of your state’s capital city may have discovered that free-to-air television is (a little bit) different. There are regional broadcasters who arrange at least some local news and advertising, but also carry a lot of the programming of the “big” broadcasters.

WIN Corporation is one such regional broadcaster. For many years, it had a “programming supply agreement” through which it took much of the Nine Network’s programming. Thereby bringing the joys of A Current Affair and the Block to those lucky enough to live in a place where WIN was a broadcaster.

The relevant clause (clause 2.1) said:

“Nine grants WIN the exclusive licence to broadcast on and in the licence areas covered by the WIN Stations the program schedule broadcast by Nine on each of the channels known as ‘Nine’, ‘NineHD’, ‘9Go’, ‘9Gem’, ‘Extra’ and ‘9Life’ (the ‘Nine Channels’), to be picked up by WIN at Nine’s NPC.”

The Court and the parties all agred that “exclusive” in this context meant that Nine could not license anyone else to broadcast its content in WIN’s territory. Nor could it “broadcast” its content in WIN’S territory itself.[1]

WIN’s case was that this clause also meant Nine could not allow people in WIN’s territory to access the content through Nine’s website too. (You may already be perceiving some practical difficulties with WIN’s argument, if right.)

The evidence showed that the scope of the grant had been the subject of some negotiation, with Nine contending for a narrow definition and WIN arguing for a broader definition. The trial judge had found this evidence of pre-contactual negotiations did not assist the interpretation exercise. Apart from anything else, it was inconclusive and incomplete.[2]

Barrett AJA pointed out that a playwright could grant an exclusive licence to perform his or her play at a particular time or place, but that did not prevent the playwright from granting someone else a licence to show the play as a film or to perform the play some other place or time. This was important because it meant (you will be surprised to read) that the scope of exclusivity depended on the terms of the grant. His Honour explained at [34]:

The important point is that a person who has a collection of rights and grants an exclusive licence in respect of only some of those rights does not, through the exclusivity undertaking, promise the grantee not to exercise (or allow others to exercise) the remainder of the rights that is not the subject of the grant. The exclusivity undertaking restricts the grantor only as regards the rights granted. Preclusion of the grantor in relation to the whole or any part of the remainder of the grantor’s rights could come only from some contractual stipulation over and above that which is implied by the exclusive quality of the grant.

Applying this, his Honour considered that WIN’s licence to broadcast was limited to the kinds of broadcasting it was licensed to engage in under the Broadcasting Services Act and only within the territories it held a commercial broadcasting licence for. So this meant its exclusivity related only to free-to-air broadcasting in its territory. In the judgment under appeal, Hammerschlag J had explained at [82]:

Where clause 2.1 refers to broadcasting on and in the licence areas covered by the WIN Stations this is, and can only be, a reference to free-to-air. The licence areas are the geographical delimitations imposed on WIN by its licences under the BSA. These licences cover only free-to-air. Unsurprisingly, it is common cause that the WIN Stations have only ever broadcasted free-to-air and under such licences. They are traditional television stations. They do not deliver by internet. Internet delivery is not geographically based in the same way as is free-to-air.

Barrett AJA also rejected WIN’s argument that exclusivity over internet streaming followed from the implied term not to do anything that would deprive the other party of the benefit of the contract. WIN argued it was necessary for the exclusivity to extend to internet streaming as the promise of exclusivity meant it was to be free from competition.

Judging from the number of people watching TV on the train, tram and buses these days, you might think WIN had something of a point.

Barrett AJA, however, considered the benefit for which WIN had contracted was exclusivity from competition in free-to-air broadcasting. Nine was not under a duty to maximise WIN’s return under the contract, but to ensure that WIN had exclusive rights to broadcast Nine’s programming by free-to-air transmissions. His Honour said at [73]:

In the present case, the PSA, according to its correct construction, required Nine to desist from engaging in free-to-air transmission of Nine programs in the WIN licence areas and from enabling persons other than WIN to undertake free-to-air transmission of those programs in those areas. The “benefit” of the contract, from WIN’s perspective, was the right to transmit the Nine programs free-to-air in the WIN areas without free-to-air competition by Nine or anyone to whom Nine had given transmission rights. Extension of the negative stipulation binding on Nine so as to forbid live-streaming would entail a restriction on Nine and a corresponding “benefit” to WIN over and above those created by the contract and, in that way, enlarge rather than support and underwrite WIN’s contracted benefit. The value of the benefit of the contract to WIN was, as in the Queensland case, dependent on many contingencies, some of which were in Nine’s control. But Nine was not obliged to maximise WIN’s return from the contract.

At one level, the result is not too surprising. “We” have been generally aware at least from the Optus Now here and here controversies several years back that the major sporting organisations were generating very substantial revenues from internet streaming in addition to the broadcast (pay and/or free-to-air) rights. If you are drafting an exclusive licence relating to the right to communicate to the public, therefore, you will need to pay careful attention to what exactly is intended to be included: the whole right to communicate to the public, broadcasting (in some one or many of its multifarious forms), internet streaming etc.

WIN Corporation Pty Ltd v Nine Network Australia Pty Ltd [2016] NSWCA 297 (McColl JA, Sackville and Barrett AJJA)

  1. Barrett AJA conveniently collected the well-established propositions at footnote 15: “15. As a matter of general principle, an “exclusive” licence confers relevant rights upon the licensee to the exclusion of the whole world, including the licensor: Carr v Benson (1868) 3 Ch. App. 524 at 532; Reid v Moreland Timber Co Pty Ltd (1946) 73 CLR 1; [1946] HCA 48 at 5 (Latham CJ) and 15 (McTiernan J applying Heap v Hartley (1889) 42 Ch. D. 461). A “sole” licence resembles an “exclusive” licence but does not operate to exclude the grantor: see, for example, Black & Decker Inc v GMCA Pty Ltd (No 2) [2008] FCA 504; (2008) 76 IPR 99 at [131] (Heerey J).”  ?
  2. WIN Corporation Pty Ltd -v- Nine Network Australia Pty Limited [2016] NSWSC 523 at [71] – [80].  ?

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Two points about exclusive licences of patents in Australia

1 Comment / Patents / / / , , , ,

The Full Court has upheld Rares J’s decision that Novartis was an exclusive licensee with standing to sue for patent infringement. However, its sub-licensee was not.[1]

Under the Patents Act 1990, only the patentee and an exclusive licensee have standing to sue for infringement: s 120. For this purpose, the licensee must be the exclusive licensee of all the rights to exploit the patent.[2]

In its initial licence, Orion had reserved to itself the right to manufacture the relevant drugs; granting Novartis the exclusive rights to import, use, offer to sell and sell the drugs. Orion also had rights to introduce its own generic product if a generic producer entered the market.

Following the Full Court’s ruling in BMS v Apotex (Aripiprazole), those terms meant that Novatis was not an “exclusive licensee” as (at the least) the grant did not include also the exclusive right to make the drugs.

Following Aripiprazole, however, Orion and Novartis amended the terms of the licence. Under the terms of the new licence, Orion simply granted Novartis the exclusive licence to exploit the patent in Australia “to the exclusion of all other persons”. In clause 2, however, Novartis undertook to buy all its requirements for the licensed products from Orion. There was also a side agreement that Novartis’ exclusive licence terminated if its rights under another, umbrella agreement[3] terminated.

As Actavis did not contend that the new arrangements were a sham, the Full Court affirmed Rares J’s conclusion that the new arrangements superseded the previous arrangements in which Orion had reserved rights of manufacture. Further, the agreement to buy all its requirements for the patented products did not undercut that exclusivity.

There were textual arguments to support that conclusion, such as recognition that Novartis could apply to IP Australia to register its status as exclusive licensee. Perhaps, the key point is that an exclusive licensee could, if it so wished, contract with some other person for that person to make the products for it. The fact that the “other person” was the patentee did not undermine that proposition.

We are persuaded that the primary judge’s analysis of the relationship between clause 1 and clause 2 is correct. Although it is true to say that the two clauses are connected, we think that the primary judge was correct to conclude that they represent separate promises in the sense that clause 1 creates the plenary rights of an exclusive licensee and clause 2 reflects the agreement between the parties as to how Novartis will exercise its rights. We do not think that clause 2 acts as some exclusion clause or limitation clause in the way in which the appellants contend, such as to cut down the legal effect of the rights granted by clause 1.

The sub-licensee

Novartis itself had granted an exclusive sub-licence of its rights under the exclusive licence to Novartis Australia.

The Full Court rejected the argument (and Novartis itself did not try to defend it) that there had been an assignment of its rights to Novartis Australia.

The Full Court ruled that s 120 is mandatory and not permissive only. That is, only a patentee or an exclusive licensee had standing to sue for infringement. As Novartis Australia was only a sub-licensee, therefore, it had no standing to sue for infringement.

As a sub-licensee, however, Novartis Australia had sufficient interest to have standing as a proper party to the cross-claim for invalidity under s 139.

It is difficult to imagine that in this case this delicate footwork will have much reflection in who pays whose costs. One point where it could have a real impact, however, could be on what damages, if any, were payable. It might well not be possible to claim damages for sales lost by Novartis Australia, if it did in fact lose any sales, as Novartis Australia did not have standing to sue for infringement.[4]

Actavis Pty Ltd v Orion Corporation [2016] FCAFC 121 (Allsop CJ, Nicholas and Yates JJ)

  1. There are 193 paragraphs before the discussion of this issue, dealing with questions of validity and infringement (which seem to turn mainly on points of construction).  ?
  2. From the Dictionary: “exclusive licensee ” means a licensee under a licence granted by the patentee and conferring on the licensee, or on the licensee and persons authorised by the licensee, the right to exploit the patented invention throughout the patent area to the exclusion of the patentee and all other persons.  ?
  3. A so-called Rest of the World Agreement, setting out arrangements between the parties except for the USA and the European Union.  ?
  4. In Insight SRC v ACER, however, a Full Court held that a copyright owner could recover damages for sales lost non-exclusive licensees who did not have standing to sue for infringement.  ?

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