India: Prevention Is Better Than Cure- Avoidance Of S.140 Of The Patents Act

Last Updated: 30 November 2015
Article by Aayush Sharma

The twenty first century is the century of innovation and everybody wants to protect their innovation in a way so that no one can trespass in their jurisdiction of innovative world. As we know Patents is one of the oldest forms of Intellectual property right. This right is granted by the government conferring a monopoly right on an inventor to exploit his invention for a specified time period. For obtaining this right the patentee has to file an application for issuance of patent which is generally issued by the government after certain inquiry and cross objection. And licensing constitutes an important part of this regime.

After the grant of patent, the patentee start exploiting their invention or rather most of the time starts trading their innovation in the form of sale, lease, license and purchase. By granting a license to a person, the patent owner authorizes the person (licensee) to exercise the patent rights under certain circumstances. But when they draft an agreement for the lease and license of patent use they knowingly or unknowingly put some clauses in agreement which is very harmful for the public interest or sometime injurious too. It has been seen that while leasing the patented article, inclusion of certain restrictive condition leads towards the court of law, where any kind of defence is not acceptable.

Section 140 of The Patents Act, 1970

Avoidance of certain restrictive conditions:

(1) It shall not be lawful to insert—

(i) In any contract for or in relation to the sale or lease of a patented article or an article made by a patented process; or

(ii) in licence to manufacture or use a patented article; or

(iii) in a licence to work any process protected by a patent, a condition the effect of which may be—

a) to require the purchaser, lessee, or licensee to acquire from the vendor, lessor, or licensor or his nominees, or to prohibit from acquiring or to restrict in any manner or to any extent his right to acquire from any person or to prohibit him from acquiring except from the vendor, lessor, or licensor or his nominees any article other than the patented article or an article other than that made by the patented process; or

Explanation: Under this clause, vendor, lessor, or licensor or his nominees if prohibits or restrict the purchaser, lessee, or licensee to extent their rights to acquire from any person or to prohibit him from acquiring except from the vendor, lessor, or licensor or his nominees any article other than the patented article or an article other than that made by the patented process, in such cases the license agreement shall be void or null.

b) to prohibit the purchaser, lessee or licensee from using or to restrict in any manner or to any extent the right of the purchaser, lessee or licensee, to use an article other than the patented article or an article other than that made by the patented process, which is not supplied by the vendor, lessor or licensor or his nominee; or

Explanation: Under this clause, vendor, lessor, or licensor or his nominees if prohibits or restrict the purchaser, lessee, or licensee to use an article other than the patented article or an article other than that made by the patented process, which is not supplied by the vendor, lessor or licensor or his nominee, in such cases the licensee agreement terms to be void.

c) to prohibit the purchaser, lessee or licensee from using or to restrict in any manner or to any extent the right of the purchaser, lessee or licensee to use any process other than the patented process,

Explanation: Under this clause, vendor, lessor, or licensor or his nominees if prohibits or restrict in any manner to use any process other than the patented process, then such contract or licensee is void.

d) to provide exclusive Grant back, prevention to challenges to validity of Patent & Coercive package licensing, and any such condition shall be void.

(2) A condition of the nature referred to in clause (a) or clause (b) or clause (c) of sub-section (1) shall not cease to be a condition falling within that sub-section merely by reason of the fact that the agreement containing it has been entered into separately, whether before or after the contract relating to the sale, lease or licence of the patented article or process.

(3) In proceedings against any person for the infringement of a patent, it shall be a defence to prove that at the time of the infringement there was in force a contract relating to the patent and containing a condition declared unlawful by this section

Explanation: According to this it will be defence against the infringement to p r o v e that at that time of infringement there was in force a contract containing a restrictive condition which is declared void under section 140 of the Patent Act, 1970.

Provided that this sub-section shall not apply if the plaintiff is not a party to the contract and proves to the satisfaction of the court that the restrictive condition was inserted in the contract without his knowledge and consent, express or implied.

(4) Nothing in this section shall—

a) affect a condition in a contract by which a person is prohibited from selling goods other than those of a particular person;

b) validate a contract which, but for this section, would be invalid,

c) affect a condition in a contract for the lease of, or licence to use a patented article, by which the lessor or licensor reserves to himself or his nominee the right to supply such new parts of the patented article as may be required or to put or keep it in repair.

Further to the above said clause, there are two important terms which is required to be understand under the refercne of S.140 of the India Patents Act, 1970.

Coercive Package Licensing- When patent owner licenses a patent, there may be requirement of licensing more than one patent in order to commercialize the invention. Such license for the multiple patents is called as package license. Such package license shall by volunteer and with consent of both parties. In fact, the licensee shall choose each of the patents it wishes to license. Such package licenses are absolutely legal.

However, if the Licensor forces licensee to take license for patent (s) even if it is not required by licensee, such license is called as coercive package license. Coercive package license is not a good practice and paying royalty for such license is extra burden on the licensee. Under Section 84 (7) of the Indian Patent Act, 1970, reasonable requirements of the public are considered not to be fulfilled if the patentee imposes Coercive package license for the patents. Under Section 140 of the Act [Avoidance of certain restrictive conditions], Coercive package license is considered as unlawful.

Grant Back: Many patent license agreements fail to address improvements by the licensee, allowing the licensee to file improvement patents of its own that may make the licensor's technology obsolete or even block the licensor from commercializing its own product with the improvements. By including "grant back" provisions in license agreements, a licensor can ensure that when licensing out patents covering its technology, any improvements by the licensee are granted back to the licensor.

Conclusion:

"Precaution is better than cure." With the help of this quotation we can understand the rigidity of section 140 of Patent Law. It is better to draft an agreement in such a form so that none of the restrictive clause mentioned in section 140 create a space. So before handing over the agreement to other party appropriate steps should be taken to keep the agreement valid and enforceable.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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