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Focus: High Court decision on contributory infringement of patents

18 November 2008

In brief: For the first time, the High Court has considered the operation of section 117 of the Patents Act 1990 (Cth), which imposes liability in certain circumstances for contributory infringement of a patent. Senior Associate Rob Silberstein and Law Graduate Nicholas Tobias examine the decision and its likely impact.

How does it affect you?

  • The operation of the provisions regarding contributory infringement of a patent has been clarified considerably. Patentees and suppliers alike (for competing reasons) should be aware of the implications of these very important provisions.

The facts

Mr and Mrs Collins were the registered proprietors of a patent directed to a method of producing blue cypress oil from a mixture of bark and wood of the cypress pine, Callitris intratropica (the patent). The Northern Territory Government (the NT Government) granted various licences to the Australian Cypress Oil Company Pty Ltd (ACOC), entitling ACOC to take timber from Callitris intratropica trees in a plantation on Crown land. The Courts assumed that ACOC used the timber to make blue cypress oil in accordance with the patent. The Collinses alleged that the NT Government was liable for contributory infringement of the patent under s117 of the Patents Act 1990 (Cth) (the Act) for supplying the timber to ACOC.

Overview of contributory infringement

Contributory infringement is a vexed area of law in Australia and overseas. Under Australian law, a person may, in certain circumstances, be liable for contributory infringement if that person supplies a product to another, where the use of that product would infringe a third party's patent rights.

The contributory infringement provisions seek to balance the competing interests of protecting a patentee against infringement of the patent, while allowing suppliers to freely trade their products in the marketplace, even where those products are, or may be, used by a third party to infringe a patent.1

Section 117 of the Act sets out the framework for contributory infringement:

117 Infringement by supply of products

  1. If the use of a product by a person would infringe a patent, the supply of that product by one person to another is an infringement of the patent by the supplier unless the supplier is the patentee or licensee of the patent.
  2. A reference in subsection (1) to the use of a product by a person is a reference to:
  1. if the product is capable of only one reasonable use, having regard to its nature or design—that use; or
  2. if the product is not a staple commercial product—any use of the product, if the supplier had reason to believe that the person would put it to that use; or
  3. in any case—the use of the product in accordance with any instructions for the use of the product, or any inducement to use the product, given to the person by the supplier or contained in an advertisement published by or with the authority of the supplier.

Questions for consideration by the High Court in the present case

It was assumed at first instance and on appeal that ACOC's use of the timber infringed the patent and that the NT Government had reason to believe that ACOC would put the timber to that use. The Collinses pursued their case on the basis that the NT Government was liable under the provision of s117(2)(b).

At first instance, Justice Mansfield held in favour of the NT Government, finding that it did not 'supply' the timber to ACOC within the meaning of s117(1) and that, even if it had, the timber was a 'staple commercial product' and therefore did not fall within the scope of s117(2)(b).

On appeal, a majority of the full Federal Court overturned Justice Mansfield's decision, disagreeing on both counts.2

The High Court faced two critical questions in Northern Territory v Collins (2008) 249 ALR 621:

  1. Did the full Federal Court err in holding that the NT Government had 'supplied' the timber to ACOC within the meaning of s117(1)?
  2. Did the full Federal Court err in holding that the timber was not a staple commercial product?

Construing section 117

The appropriate way to approach construction of s117(1) has been subject to much debate among Federal Court judges.

In Rescare,3 Justice Gummow held the firm view that, because the Act does not define 'infringe', the proper approach to s117 is to start with the Act's definition of 'exploit' and then analyse whether use of the product would constitute exploitation. The right to 'exploit' a method or process patent under the Act includes a right to use the method or process itself, as well as a right to exploit products resulting from such use. Justice Gummow held that supply of a product could only amount to contributory infringement of a patented method or process if the product used was a product that resulted from use of the patented method or process.

This view has been the subject of much criticism: see, for example, Bristol-Myers v Faulding4 and Monotti.5

The High Court has now confirmed that Justice Gummow's approach of starting with the definition of exploit was correct. However, it held that the supplied product need not be a product resulting from the use of the method or process for liability to arise. Justice Crennan held:6

... a consideration of the complete definition of 'exploit' in respect of a method or process indicates that there is no reason to deny the application of s117 to a product (including, as here, an unpatented product) supplied by the supplier, preparatory to any carrying out of the patented method by a person to whom the product is supplied.

This clarification is welcome news for method and process patent holders but was not significant to the outcome of the case.

'Supply'

The NT Government planted trees of the species Callitris intratropica in the Howard Springs Plantation in the late 1960s, in order to produce commercial timber. Results were disappointing, and by 1995 the timber was no longer considered to be of sufficient quality for its intended use, although it was of sufficient quality for other commercial uses, including milling and woodchip and firewood production. Following a competitive tender process for removal of the trees in mid-1997, the NT Government granted ACOC four licences under the Crown Lands Act 1992 (NT), allowing ACOC to take timber from trees of the species Callitris intratropica.

The primary judge and the full Federal Court had engaged in a complex deconstruction of the terms of ACOC's licences to ascertain whether they truly constituted a 'supply' within the meaning of s117(1). Their Honours debated the effect of royalty payments, rights of use for residential purposes, rights of termination and obligations to remove and rehabilitate, in order to reach a conclusion on whether the licences should be classified as permissive or obligatory, with an implication that only the latter would amount to a 'supply'. Also taking a complex, but different, approach, Justice French (the minority of the full Federal Court) accepted the NT Government's submissions that the licences were, in practice, not licences at all, but rather, grants in the nature of a 'profit a prendre', with ACOC having been given an interest in land (to sever and remove trees) rather than a mere personal right.

The High Court handled the matter quite differently. It took a no-nonsense approach, interpreting the word 'supply' broadly and in an intuitive and commonsense fashion. As Justine Hayne succinctly put it, ACOC was permitted by the licences to cut and take the timber. That being so, there was a 'supply' of the timber (the majority of other judges effectively agreed).

This finding should be a relief to practitioners and patent holders, as it may now be easier to show that a product was in fact 'supplied'.

'Staple commercial product'

Having established that there was a 'supply', liability for contributory infringement turned upon whether the timber was a 'staple commercial product' within the meaning of s117(2)(b).

In the minority full Federal Court judgment, Justice French provides a detailed historical analysis on contributory infringement in Australia and overseas. The majority of the full Federal Court did not provide a comprehensive test for determining whether a product is a 'staple commercial product' within the meaning of s117(2)(b) but held that one quality of a staple commercial product 'is that it is an item of commerce in the sense that it is ordinarily available for purchase from an entity that trades in that product.' 7

The High Court took an approach similar to the United States' doctrine of 'lawful as well as unlawful uses'. Justice Crennan explained:8

The phrase 'staple commercial product' means a product supplied commercially for various uses... The relevant enquiry is into whether the supply of the product is commercial and whether the product has various uses.

The High Court held that because the timber (a) had been supplied commercially and (b) had several uses, it was a 'staple commercial product'. Liability cannot arise under s117(2)(b) if the product supplied is a 'staple commercial product' and, therefore, the contributory infringement claim failed and the NT Government's appeal was allowed.

Answered and unanswered questions

The High Court has authoritatively answered what constitutes a 'supply' within the meaning of s117(1) and what is the meaning of 'staple commercial product' within the meaning of s117(2)(b). The latter was, in fact, determinative of the matter.

However, several important matters relevant to contributory infringement of patents remain unresolved. They include:

  • What is the proper meaning of 'reason to believe' in s117(2)(b)? Whether a supplier had 'reason to believe' that the use of a product supplied would infringe a patent may be a critical issue for patent holders considering litigation for contributory infringement. Justice French provided limited guidance on this issue in his minority judgment in the full Federal Court, but that Court had assumed that the NT Government had 'reason to believe' that ACOC would use the timber in accordance with the patent, and Justice French noted that his comments in this regard were strictly obiter.
  • How do s117(2)(a) and (c) properly operate? The Collinses did not submit that use of the timber was 'use of a product' within either of these grounds. This is understandable for s117(2)(a). However, for s117(2)(c), the position may be different. In their judgment, the majority of the full Federal Court explained that s117(2)(c) appears to reflect the common law position for accessorial tortious liability,9 which is a liability imposed at common law on a person as an infringer if he or she aided, induced or procured another to infringe a patent. However, to establish common law liability, it must be shown that the joint tortfeasor made a concerted action with another in commission of the infringement.10 There was no discussion as to whether the NT Government made a concerted action with ACOC or whether the NT Government's conduct in granting the licences amounted to an active encouragement of ACOC to use the timber to infringe the patent. The plausibility of the latter, however, raises a related unanswered question: is s117(2)(c), like s117(2)(a) and (b),11 in fact an expansion of the common law position, rather than a legislative restatement of it? The proper meaning of 'inducement' will undoubtedly come to the fore in future litigation.

Conclusion

The High Court's decision is the leading case in contributory infringement under patent law in Australia. It provides authoritative guidance on how to approach s117 and the proper meanings of 'supply' and 'staple commercial product'. However, there are still unresolved issues in relation to contributory infringement of patents that will hopefully be clarified in the future.

Footnotes
  1. Collins v Northern Territory of Australia (2006) 70 IPR 614, per Mansfield J.
  2. See Silberstein, R., 'Contributory infringement of patents: a vexed area of law' (2008) 20(7) IPLB 105-9 for a discussion regarding the first instance and full Federal Court decisions.
  3. Rescare Ltd v Anaesthetic Supplies Pty Ltd (1992) 111 ALR 205.
  4. Bristol-Myers Squibb Co v F H Faulding & Co (2000) 97 FCR 524.
  5. Monotti, A., 'Contributory Infringement of a Process Patent under the Patents Act 1990: Does it Exist after Rescare?' (1995) 6 AIPJ 217 at 223.
  6. (2008) 249 ALR 621 at 646.
  7. (2007) 243 ALR 483 at 527.
  8. (2008) 249 ALR 621 at 650.
  9. (2007) 243 ALR 483 at 522.
  10. Morton-Norwich Products Inc v Intgercen Ltd [1978] RCP 501 per Graham J at 513.
  11. (2007) 243 ALR 483 at 522.

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