Feb 11, 2020

Patentee's refusal to grant licence on reasonable terms. Any remedies? | Infusion Lawyers



Question of the Day -


I am Jude Ogbeide, CEO of Ivory Mask Innovations Ltd, a mobile-phone technology company registered in Nigeria. In February 2018, we developed BatteryBuddies, a new technology that will enable mobile-phone users charge their batteries by using the battery power of paired mobile phones, as long as both phones are by the same manufacturer. We introduced BatteryBuddies to a Nigeria-based mobile-phone manufacturer. They loved it. After getting all paperwork done and licensing arrangements were concluded, the mobile-phone manufacturer launched a new mobile phone powered with BatteryBuddies. 


On Christmas eve, TechFusion, a technology lab, sent us a cease-and-desist letter, demanding that Ivory Mask Innovations stop making, marketing, distributing, licensing, or selling BatteryBuddies in Nigeria because it allegedly infringed on its patent in a similar technology, PowerFusion 3000. TechFusion made the same demand to our phone-manufacturing client. According to TechFusion, it developed tPowerFusion 3000 in 2014 and the invention was patented in December 2016. TechFusion has threatened to take legal action against us if we failed to cooperate.



Because we have invested so much in BatteryBuddies, we had to contact 3 patent experts to assess both inventions. After independent expert assessments, it turned out—sadly—that indeed TechFusion had developed and patented the same invention. Consequently, we decided to cooperate.



But here's the problem we have: We applied to TechFusion for licence but TechFusion refused to license its technology to us. After another try, TechFusion eventually agreed but offered to license the patented invention under most unreasonable terms, including a most ridiculous licence fee. Meanwhile, since TechFusion got patent for PowerFusion 3000 in Nigeria, the product has remained unused in the mobile-phone industry in the country. Yet, TechFusion has prevented us from manufacturing BatteryBuddies. This is unfair and most frustrating! Under Nigeria's patent law, if a patentee refuses to grant licence on reasonable terms, does the applicant have any remedy?





Answer

Dear Mr Ogbeide


The answer is YES; applicant for a licence to a patented invention who is unable to obtain from the patentee a licence on reasonable terms may apply to the Federal High Court for a compulsory licence. If the court determines that there is a ground for granting a compulsory licence in accordance with the requirements of Nigeria's Patents and Designs Act, it would grant it.


Compulsory licences are lawful under the Patents and Designs Act.

The drafters of the Patents and Designs Act contemplate that there may be a situation where there is need for compulsory licences. Section 11 of the Act allows compulsory licenses to be granted. Application for and grant of a compulsory licence is governed by the provisions of the First Schedule to the Act.

By virtue of Part I paragraph 1 of the First Schedule of the Act, a person may apply to the Federal High Court for the grant of a compulsory licence. But an applicant for a compulsory licence is not qualified to apply for one until (a) a period of 4 years has expired after the patent application was filed or (b) a period of 3 years has expired after the patent was granted, whichever period comes first.

From the above, Ivory Mask Innovations Ltd is not yet qualified to apply for a compulsory licence for TechFusio's PowerFusion 3000 patent. This is because the patent was granted in December 2016, one year shot of the 3-year period required for filing for compulsory licences after the patent was granted. But if TechFusion filed for the patent more than 4 years ago, Ivory Mask Innovations Ltd is qualified to apply.



Therefore, based on the year the patent as granted, Ivory Mask Innovations Ltd may apply for a compulsory licence by December 2019.




Apart from the time factor above, there are 4 separate statutory grounds for a grant of compulsory licence in Nigeria.

Compulsory licences are granted by the Federal High Court upon an applicant’s fulfillment of the statutory requirements under Part I paragraph 1(a)-(d) of the First Schedule of the Act. By virtue of this provision, the court has the power to grant a compulsory licence “on one or more of the following grounds”:

The patented invention, capable of being worked in Nigeria, has not been so worked [emphasis ours];

1.      The existing degree of working of the patented invention in Nigeria does not meet on reasonable terms the demand for the product;

2.      The working of the patented invention in Nigeria is being hindered or prevented by the importation of the patented article; and

3.      By reason of the refusal of the patentee to grant licences on reasonable terms, the establishment or development of industrial or commercial activities in Nigeria is unfairly and substantially prejudiced [emphasis ours].

These for grounds are not cumulative requirements. Once Ivory Mask Innovations Ltd can prove one of the grounds, the court is required to grant the compulsory licence.


Of the 4 grounds above, 2 grounds may favour Ivory Mask Innovations Ltd if it applies to the court for a compulsory licence.

To convince the court, Ivory Mask Innovations Ltd must either prove that TechFusion has failed to work the patented invention or has the establishment or development of industrial or by refusing to grant licences on reasonable terms, TechFusion’s refusal will unfairly and substantially prejudice the establishment or development of industrial or commercial activities in Nigeria.

First, regarding the first ground i.e working the patented invention, paragraph 14 of the First Schedule to the Act directs that “references to the working of a patented invention” are to be construed to mean: “(a) the manufacture of a patented article; or (b) the application of a patented process; or (c) the use in manufacture of a patented machine, by an effective and serious establishment existing in Nigeria on a scale which is adequate and reasonable in the circumstances.” If all TechFusion has got is a patent and not the manufactured product 2 years after being granted patent, the court may treat this as a ground for granting a compulsory licence.



Second, regarding the last ground i.e TechFusion's refusal to licence the patented invention in reasonable terms, the court will form an opinion on whether the terms are indeed reasonable. If found unreasonable, the court is required to find whether by reason of the unreasonable terms, industrial or commercial activities in Nigeria concerning the establishment or development of the patented invention have been unfairly and substantially prejudiced.



If the court founds that TechFusion has failed on either of the 2 grounds discussed above, it will grant a compulsory licence to Ivory Mask Innovations Ltd on the court's terms.



Patents are granted by the state based on valuable consideration by the patentee—disclosure of all the details of how the invention works. For this reason, the same state is not in a hurry to grant compulsory licences except the patentee's monopoly conflicts with public interest—industrialization and commercialization.

Before obtaining a grant of patent, a patentee must have typically invested a lot of resources into this. Also, the patentee may have structured its proprietary business in a way that enables him or her exploit the patent exclusively without any licences. The patentee may want to be a category-king. Patent law protects this proprietary and commercial interest. And because patents are exclusive rights, they necessarily create monopolies.



So by twisting the hands of a patentee with the force of law to issue a compulsory licence to an interested person, it may destroy the exclusive rights that a patentee is otherwise entitled to. The effect of this compulsory licence portend a great risk to the patentee's legitimate expectations and commercial interest.



This is why compulsory licences are only granted by the court after it has considered that at least one of the grounds for this grant is present in any application.



For legal advice and assistance with negotiations with TechFusion and application for a compulsory licence, consult your IP lawyer or law firm.

IP ABC


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