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What do you need to do?Consider whether you could be liable for contributory infringement.
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The recent decision of the High Court in Northern Territory v Collins provides important guidance on the meaning of the word “supply” and the phrase “staple commercial product” in contributory patent infringement proceedings.
In certain circumstances, a supplier of a product which is put to an infringing use will be liable for contributory or indirect 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.
Background
The Northern Territory planted cypress pine on its Howard Springs Plantation during the 1960s in an attempt to grow a commercial timber producing crop. By the 1990s it was clear that the cypress timber was not of sufficient quality for the purposes the Territory originally had in mind. However, the timber was still useful for a variety of other applications including milling for use in poles, fence posts and rails, flooring and light construction, production of mulch and firewood, indigenous applications and oil extraction. The timber was not widely traded for these purposes.
To realise some return on its investment, the Territory granted licences between 1993 and 2001 to Collins and later to the Australian Cypress Oil Company (ACOC) to enter its land and harvest the cypress trees. A commercial royalty was payable.
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 useful in aromatherapy and the manufacture of cosmetic and body care products. It may possess anti-microbial properties and preservative qualities in the treatment of wood. It also has an appealing azure colour.
The proceedings
Following the Territory’s grant of a licence to ACOC, Collins sued the Territory for contributory infringement under section 117.
The key provision at issue was section 117(2)(b) which provides:
- 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 sub-section (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;…” (emphasis added)
Collins alleged that the Territory supplied a product that was not a staple commercial product with reason to believe that it would be used to produce oil in a manner which infringed his patent. The Territory admitted that it reasonably believed that ACOC would infringe the patent. However, the Territory said that 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. It said that the licences were not supplies as they were passive agreements to allow ACOC to harvest the timber itself. It also said that the timber was a staple commercial product as it had a potential variety of commercial uses.
Collins successfully appealed to the Full Court of the Federal Court. The Full Court said that the Territory supplied the timber, because ACOC obtained the timber under the licences and because the licences obliged ACOC to take the timber. Additionally, the majority said that the timber was not a staple commercial product because it was not commonly or readily available for purchase.
The Territory appealed to the High Court.
Supply
The High Court considered that the grants of the licences constituted a supply. The Court focused on the practical effect of the licences rather than their legal nature. The licences were a means of allowing ACOC the right to remove and use the timber. This was, in practical effect, a supply.
Staple commercial product
The High Court disagreed with the Full Court and ruled in the Territory’s favour on the issue of whether the timber was a staple commercial product. It held that cypress timber is a staple commercial product. It was concerned not to give “staple commercial product” an unduly narrow meaning. Different judges emphasised different characteristics of the timber when reaching that conclusion. Some focused on the product, asking whether it resembled a “commodity” or was not “manufactured to a particular use”. Others focused on whether the product has various uses and also whether the product is actually commercially supplied for various uses.
Importance of the decision
In the result, the High Court overturned the decision of the Full Court and ruled in favour of the Territory.
It confirmed that “supply” has a broad meaning.
The High Court refused to interpret the test for contributory infringement in a way that would expand a patentee’s rights where the act of supply is not otherwise an infringement. It seemed concerned to avoid tipping the balance in favour of patentees at the expense of the right of a supplier of goods to freely trade in goods which have a variety of lawful commercial uses. As Justice Hayne put it:
“If [a product] is in fact supplied commercially for various uses, it is a staple commercial product and the supplier of such a product is not to be held liable as an infringer because the person to whom the product is supplied uses it in a way that infringes, even if the supplier has reason to believe that it may be used in that way.”
A careful consideration of both of these aspects is warranted - especially for those who supply products that have limited uses or are rarely traded, when one of their uses may be infringing.
The decision means however, that a person who commercially supplies a product which has a variety of lawful uses is unlikely to infringe, except where the supplier either instructs or induces the infringing use, or advertises the product with such instructions or inducement.