Now is the time to consider how they work.
What is their purpose?
Intellectual property licence agreements have a scheme for taking proceedings against infringers during the term of the licence. The scheme normally provides for the licensee to give notice to the licensor of any infringement coming to its attention and, should the licensor not take action against the infringer, permits the licensee to take action. It is not uncommon for the licensor and licensee to agree to share the costs and proceeds of infringement proceedings.
What are the issues?
While the licence continues, the scheme maybe commercially acceptable; but infringement proceedings taken by the licensor during the license period may continue after the expiry of the licence. What are the issues for the licensee?
Firstly, the scheme often permits the licensor to take infringement proceedings irrespective of whether the licensee has given notice of the infringement. As a result, the licensee may be required to share in the cost of proceedings that it considers are unwarranted or unlikely to succeed. Next, proceedings taken late in the term of the licence may result in the share of the proceeds of the infringement action being far less for the licensee than if the proceedings were commenced early in the term of the licence. Finally, a recent case has made clear that the licensee’s obligations under the scheme can continue after the expiry or termination of the licence.
What are the lessons?
In Austral Masonry (NSW) Pty Ltd v. Cementech Pty Ltd  FCA FC72 the Full Federal Court agreed with the findings of the trial Judge that, in the absence of a provision in the licence to the contrary, a scheme that provided for the liability for litigation expenses to be shared in respect of proceedings taken during the term of the licence and which also provided for the sharing of its proceeds, would survive the expiry or termination of the licence. As a result, Austral Masonry, the licensee, which feared that the infringement proceedings taken by the licensor may be unsuccessful, was nonetheless obliged to continue to share in the liability for the litigation costs both during the term of the licence and after the expiry or termination of the licence agreement.
A licensee should not assume that its licence obligations come to an end with the demise of the agreement. The scheme in the infringement clause needs to be crafted to deal with disputes between the licensor and licensee as to the viability of the proceedings and the effect of expiry or termination of the licence.
Austral Masonry argued that because the licence had come to an end, it could not have any continuing liability for further acts of performance, and in this case, to share in the costs of the litigation continuing to be prosecuted by the licensor after the licence agreement had expired. The Full Federal Court of Australia rejected this argument finding that the scheme in the licence agreement applied to all cases of litigation commenced during the term and that it must have been in the common contemplation of the parties that the licensor might commence proceedings during the term which would continue after the expiry of the term. Accordingly, the operation of the scheme in the licence agreement survived the licence agreement.
Do you need advice?
If you are negotiating or require advice upon the terms of an intellectual property licence, please call Peter Bolam on 07 3223 9155 or email email@example.com to discuss what assistance you may need.