25 January 2007

SUPPLY OF TIMBER NOT CONTRIBUTORY INFRINGEMENT

Collins v Northern Territory of Australia [2006] FCA 1698 (8 December 2006)

BACKGROUND

The Collins are the owners of Australian Patent No.742711. The Patent covers a method of producing essential oils from bark and wood of timber.

The Northern Territory gave permits to the Australian Cypress Oil Company (ACOC) to harvest timber from an area called Howard Springs. ACOC agreed to pay a license to the Northern Territory from oils or any other products derived from the Timber.

For the purposes of this case, it was assumed that the patent is valid and infringed by ACOC. The Collins allege that the Northern Territory has also infringed the patent by virtue of
section 117
of the Patents Act, which provides for contributory infringement.

SECTION 117

Section 117 reads 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."
The Collins ended up relying on section 117(2)(b) to be read with section 117(1). In other words, they alleged that the timber was not a staple commercial product and the Northern Territory had reason to believe that the product would be put to the infringing use.

THE ISSUES

There were three main issues to be decided. The first issue was whether the grant of the license amounted to "supply". The second issue was whether the timber was a "staple commercial product". The third issue was as to the extent of knowledge of the Northern Territory necessary to show that it had "reason to believe". The evidence clearly showed that the Northern Territory had such "reason to believe". so the third issue was settled quickly.

IS THE GRANT OF A LICENSE 'SUPPLY'?

The license agreement that ACOC had with the Northern Territory was "permissive". ACOC was permitted to go onto Northern Territories land and harvest the trees.

The term "supply" as defined in Schedule I of the Patents Act requires a positive act in the form of either selling, exchanging, leasing, hiring or hire-purchasing. Just allowing ACOC to go onto land was not such an act.

Thus, the court held that the grant of the licenses did not amount to the "supply" of the timber to ACOC.

WHAT IS A "STAPLE COMMERCIAL PRODUCT"?

The Act doesn't define "staple commercial product". However, the Collins accepted that the timber would have been a staple commercial product if it had not been "written off" as a commercial crop for use as timber.

The court held that a crop does not lose its character as a staple commercial product because it is not being harvested for its initial purpose. Clearly the timber retained commercial value. In fact, the license fee paid by ACOC was a royalty payment on the blue cypress oil which ACOC produced.

The court pointed out that the Collins had also approached the Northern Territory for a license to harvest the timber to extract essential oils.

Clearly then, to all parties, including the Collins, the trees had significant commercial value and could be regarded as a staple commercial product for the extraction of at least essential oils.

CONCLUSION

The Collins therefore failed in their bid to show that the Northern Territory was liable for infringement.

This case is interesting in that it provides working definitions for "supply" and "staple commercial products" for our provisions relating to contributory infringement. Given the short supply of cases dealing with contributory infringement, this decision is welcome.


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