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Interpreting a settlement licence to produce a “patent peace”

The Court of Appeal has applied business common sense to resolve a dispute about the scope of a patent licence and the meaning of a so-called patent laundering clause.

What does “on behalf of” mean?

A dispute arose between ASSIA, a U.S. based telecoms patent-holding company, and BT over the scope of a patent licence. The licence had been entered into by the parties as part of the settlement of earlier patent litigation between them.

The licence had a provision headed “Clarification regarding patent laundering”. This stated that the licence was “not intended to cover products or services provided by the Parties to the extent that such products or services are provided on behalf of a third party and then to the extent that such products or services are provided using materials provided by or on behalf of the third party”.

ASSIA became concerned that Sky might be infringing its patents. Sky’s response was that it was “retailing BT Openreach’s wholesale network”. The patent licence, as granted to BT, permitted BT to sell services on its network. The question for the court was what did the patent laundering clause mean.  

The court characterised ASSIA’s interpretation of the clause as meaning that “the provision of a first service to a third party by a licensee ruled out the idea that when the third party offers a more extensive service to a fourth party (the end user), of which the first service was a necessary part, that first service could be characterised as being provided to the fourth party on behalf of the third party”. 

In other words, BT selling services to a communications provider like Sky, who in turn relied on those services to sell an ISP service to its customers, was all part of the same “service” and so was excluded from the licence by reason of the laundering clause. 

BT argued that the clause served a different purpose and had a different meaning. For the exclusion to apply, BT said that the “service” that BT supplied had to be one and the same “service” that the communications provider was selling to its customers (and not just a component of it). Given there were rival interpretations, BT said, the courts could, and should, employ the interpretation tool of business common sense to prefer its interpretation.

Business common sense prevails

The court held that there were two rival interpretations so that it was entitled to prefer the one which accorded with business common sense. It held the purpose of the original patent licence was to achieve “patent peace” following litigation that had at its core the very sort of technical solutions that were being provided as part of the “services” BT was selling to communications providers. Accordingly BT had the better of the arguments.

But you can’t jump to business common sense if there is no ambiguity

The court was, however, keen to stress that although there was ambiguity on these facts, had there not been it would not have been appropriate to turn to business common sense.

Judgment: ASSIA Inc v BT Plc 

Thanks to Bruno Rucinski who produced the first draft.

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