High Court considers contributory infringement provisions of Patents Act 1990 for the first time

The decision of the High Court of Australia in Northern Territory of Australia v Collins ([2008] HCA 49, 16th October 2008) provides guidance as to the meaning of the contributory infringement provisions under Section 117 of the Patents Act 1990 (Cth) in patent infringement proceedings.

Contributory infringement (also known as indirect, participatory or secondary) applies to those circumstances where a patentee may be able to recover damages from a defendant for supplying another person with a product even though the actual act of infringement was committed by the other person (or direct infringer). Contributory infringement commonly occurs when goods, material or parts are supplied to a consumer with the intention that they be used, consumed or assembled in a way that infringes a patent. Although some acts of indirect or contributory infringement could give rise to remedies at the patentee’s suit under common law, there are certain limitations.

The Industrial Property Advisory Committee noted in its report of 29th August 1984 that:

“it would be more effective, realistic and just for the patentee to be able to take action against the supplier or middleman who facilitates the commission of the infringing act by the ultimate consumer.”

It recommended that:

“in general the supply of goods whose only use would infringe a patent, or which are accompanied by a positive inducement for the ultimate consumer to perform actions which would innocently or knowingly infringe a patent, should itself be an infringement of the patent.”

This recommendation was subsequently endorsed and implemented by the Australian government under Section 117 of the act, which covers infringement by supplying another person with a product. One of the reasons given by the government for accepting the recommendation and introducing Section 117 was said to be to “harmonise [Australian patent law] with the laws of Australia’s major trading partners”, such as the United States and the United Kingdom.

Section 117 (infringement by supply of products) provides as follows:

“(1) 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 patent.

(2) A reference in subsection (1) to the use of a product by a person is a reference to:

(a) if the product is capable of only one reasonable use, having regard to its nature or design - that use; or

(b) 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; or

(c) in any case - the use of the product in accordance with any instructions for the use of the product, or any inducement to use the product, given to the person by the supplier or contained in an advertisement published by or with the authority of the supplier.”

However, while the act gives a definition of “supply” (including supply or offer to supply by way of sale, exchange, lease, hire or hire-purchase), it includes no definition of “product” or “staple commercial product”.

Background to the Collins Case
Mr and Mrs Collins are the owners of Australian Patent 742711 claiming methods for producing blue cypress oil from the bark and wood of trees of the species callitris intratropica. In 1998 and 1999 the Northern Territory government issued four licences to the Australian Cyprus Oil Company Pty Ltd (ACOC) to take timber from the trees of that species from a failed government plantation.

The Collinses commenced proceedings in the Federal Court of Australia against the Northern Territory government, alleging infringement of the patent under Section 117 of the act. The Collinses claimed that the Northern Territory government’s liability stemmed from supplying the timber under licence (the timber not being a staple commercial product) in circumstances where the Northern Territory government had reason to believe that the timber would be put to an infringing use.

The three main issues to be addressed were: 

• Was the supply of an input for a patented method or process (or resulting product) capable of attracting the operation of Section 117(1) of the act? 
• Was the grant of a statutory licence the supply of a product within the meaning of Section 117(1) of the act? 
• Was the timber to be taken under the statutory licence a staple commercial product within the meaning of Section 117(2)(b) of the act?

At first instance, Justice Mansfield of the Federal Court found in favour of the Northern Territory government. He answered yes to the first and third questions – the ACOC had taken the bark and wood of the timber supplied by the Northern Territory government to it and produced blue cypress oil. Therefore, the timber (or the bark and wood from the timber) was an input into the process by which the oil was produced and a staple commercial product had been supplied. However, his answer to the second question was no; there was no “supply” of timber to ACOC within the meaning of Section 117 due to the licences being merely permissive. There was no positive act that in terms of the definition of “supply” amounted to the sale, exchange, lease, hire or hire-purchase, or the offer to supply by way of sale, exchange, lease, hire or hire-purchase, of the timber

The Collinses successfully appealed to the Full Court of the Federal Court. The majority of the Full Court answered yes to the second question, saying that the primary judge had erred in characterising the licences to the ACOC as merely permissive (in that the licences of the timber by the Northern Territory government amounted to a sale of its trees in exchange for payment for the trees and therefore fell within the definition of “supply” under the act). However, it answered no to the third question, finding that the timber was not a staple commercial product, whether construed broadly as timber or narrowly as unmilled trees, of the species callitris intratropica.

High Court decision
The Northern Territory government’s appeal to the High Court was allowed unanimously by all five judges. While the court considered that there had been a “supply” of the timber by the Northern Territory government to ACOC, it held that the timber was a “staple commercial product” and therefore the supply of this staple commercial product by the Northern Territory government to ACOC did not infringe the patent according to Section 117(b)(2).

Answering yes to the first question, the High Court held that the word “product” is not confined to a patented product or a product that is itself the result of applying a patented method or process.

Answering yes to the second question, the High Court confirmed that the term “supply” has a broad meaning.

Answering yes to the third question, and disagreeing with the majority of the Full Court of the Federal Court, the High Court ruled in the Northern Territory government’s favour by finding that the timber was a staple commercial product in that it was a product supplied commercially for various uses as evidenced by it having been supplied to various licensees for a variety of uses. Justice Crennan, with whom Justices Heydon and Hayne agreed, said that policy arguments in favour of imposing liability for contributory infringement are much weaker with a product that has significant non-infringing uses.

Hayne specifically noted that the term “staple commercial product” should not be given a narrow meaning. He considered that Sections 117(2)(a) and 117(2)(b) pose radically different questions:

“The question posed in Section 117(2)(a) is: For what can the product be used? By contrast the question posed in Section 117(2)(b) is: To what uses is the product in fact put? If it 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.”

Lessons learned from the Collins Case
A controversial issue of Australian patent law has been laid to rest. The word “product” in Section 117 is not confined to a product resulting from the use of a patented method. As Hayne said, the questions to be asked under Section 117(1) are as follows: 

• Is there a supply of the product? 
• What is the use of the product (as use is elucidated in Section 117(2))? 
• Does that use infringe the patent?

The grant of a licence can amount to “supply” within the terms of Section 117. However, the terms of a particular licence will be critical in determining whether there is “supply”. In addition, a supplier of a “staple commercial product” (ie, a product supplied commercially for various reasons) is unlikely to infringe unless instructions for or any inducement to infringing use of the product is given by the supplier or contained in an advertisement published by or with the authority of the supplier.