Where an agreement containing an intellectual property licence is terminated prior to the expiration of the licence, the licence itself may not necessarily terminate.
In a recent decision that is a reminder of the need to draft licences carefully, the High Court has refused an appeal application and left standing the Victorian Supreme Court’s decision from Apple & Pear Australia Ltd v Pink Lady America LLC  VSC 617. In the case, the Court found that an intellectual property licence granted under contract can survive the termination of that contract, depending on how the agreement has been drafted.
It is now crucial to consider what the parties wish to occur upon termination of an agreement, and ensure that the contract fully reflects their intentions. This is particularly important where contracts concern perpetual licences, or a licence which is expressed to operate subject to particular conditions, as occurred here.
Apple and Pear Australia Limited (APAL) is the Australian representative body for commercial apple and pear growers. It is the registered owner of PINK LADY trade marks in over 80 countries worldwide, but had repeatedly failed to register the mark in Chile.
Pink Lady America LLC (PLA) applied to register certain PINK LADY trade marks in Chile. APAL and PLA entered into an Option Deed, under which PLA agreed to grant APAL an option to acquire ownership of any trade marks that could be issued in Chile. If the option was exercised, APAL would grant PLA an exclusive, perpetual and royalty free licence to use those marks in respect of trade between Chile and North America. The licence was terminable only upon failure to meet specific quality control conditions.
The Court considered a range of issues in the dispute including, relevantly, if the Option Deed had been terminated and APAL was entitled to retain the trade marks whether the licence to PLA would continue.
PLA argued that when a contract is terminated, only future obligations are discharged and accrued rights including the trade mark licence continue. APAL argued that a perpetual licence is not an accrued right, such as a right to payment, which is fully formed regardless of whether the contract from which it derives continues to subsist. It instead argued that it is an authorisation which subsists only whilst its governing agreement exists.
Justice Croft stated that the below language of the licence:
‘…APAL will hereby grant to PLA an exclusive licence to use the Trade Marks with respect to all trade in Products between the Territory (Chile) and North America (The United States, Canada and Mexico). This licence will be royalty free, and will last in perpetuity subject only to the quality control provisions contained therein...’ (Clause 5.1),
indicated that the parties’ intention was that, once enlivened, the licence could not be brought to an end, except in that one circumstance of quality control. Consequently, as a matter of construction, the licence survived termination of the Option Deed.
How this operates in practice
Given the Court’s finding that a licence may continue after the termination of the contract, the drafting of any licence will need to ensure that the provision specifically confronts what the party wants to occur upon termination, and clearly states whether, and in what circumstances, the licence ends.
Authors: Dan Pearce & Hannah Pelka-Caven
Dan Pearce, Partner
T: +61 3 9321 9840
Lyn Nicholson, General Counsel
T: +61 2 8083 0463
Trent Taylor, Partner
T: +61 7 3135 0668
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Published by Dan Pearce, Hannah Pelka-Caven