Thursday, 23 October 2008

Meaning of "supply" in contributory patent infringement

A recent Mallesons Stephen Jaques Alert, "High Court guidance on contributory infringement by product suppliers", summarises the effect of the High Court decision in Northern Territory v Collins. In short, a supplier of a product which is put to an infringing use will be liable for contributory or indirect patent infringement. The High Court prefers a broad interpretation of “supply”. However, it also prefers a broad interpretation of “staple commercial product”, which narrows the circumstances in which suppliers will be liable for contributory infringement.

In this dispute, Northern Territory planted cypress pine on a plantation during the 1960s in an attempt to raise a commercial timber crop. Between 1993 and 2001 the Territory granted licences to Collins and later to the Australian Cypress Oil Company (ACOC) to harvest the trees in return for a commercial royalty. In 1999 Collins registered a patent for producing oil from the mixture of the bark and wood of cypress trees through steam distillation. The oil is used in aromatherapy and for making cosmetic and body care products.

After the Territory’s granted a licence to ACOC, Collins sued the Territory for contributory infringement under section 117(2)(b) of the Patents Act which provides that:

"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 patentee, and

A reference in subsection (1) to the use of a product by a person is a reference to: “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…”.

Collins alleged that the Territory supplied a staple commercial product--trees--with reason to believe that it would be used to produce oil in a way that infringed his patent. The Territory conceded that it reasonably believed that ACOC would infringe the patent, but said it was not liable under section 117, as it did not supply the timber and because the timber was a staple commercial product.

At first instance, the Federal Court ruled in the Territory’s favour on both points: the licences were not supplies as they were passive agreements to let ACOC harvest the timber itself and the timber was a staple commercial product with numerous commercial uses. Collins successfully appealed to the Full Court of the Federal Court and the Territory then appealed to the High Court.

The High Court allowed the Territory's appeal. It agreed that the grants of the licences constituted a supply, focusing on their practical effect rather than their legal nature: they were a means of allowing ACOC to remove and use the timber. This was, in practical effect, a supply. However, the High Court ruled in the Territory’s favour on the issue of whether the timber was a staple commercial product, concluding that it was.

No comments: