Lifting the lid on third party inducement of breach of patent licence

Sealed Air Australia Pty Limited v Aus-Lid Enterprises Pty Ltd [2020] FCA 29

(24 January 2020)

http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/FCA/2020/29.html

Patents – interest granted under patent licensing agreement – whether later-in-time licensee had an effective licence, which breached original licence

This dispute was primarily concerned with allegations of inducing breach of contract, misleading or deceptive conduct and damages against Visy Packaging Pty Ltd: Sealed Air Australia Pty Limited v Aus-Lid Enterprises Pty Ltd [2020] FCA 29. The claims against Aus-Lid Enterprises and its exclusive licensee (Auslid Operations) had been dealt with earlier.

In short, Aus-Lid Enterprises owned a patent for a lid for a container which had an integral implement such as a spoon for removing the container’s contents. The key element of the patent was that the lid was made in one piece with a spoon hinged on a mechanism that folded under and then clipped on the inner side of the lid. Auslid was granted an exclusive licence to exploit the patent.

Auslid granted Sealed Air an exclusive sub-licence to exploit the patent. The exclusivity of the agreement was expressly stated as follows: “The sublicence granted in clause 3.1 is an exclusive sublicence in the Field and the Patentee and Auslid must not together or separately undertake any commercial activity in the Field or grant any rights in favour of or to any third party in that Field.” If that were not clear enough, a further clause provided that “Each of the Patentee and Auslid agrees and acknowledges that […] it shall not interfere with [Sealed Air’s] enjoyment of the sublicence granted under the terms of this Agreement”.

Subsequently, Aus-Lid Enterprises and Auslid granted Visy the right to manufacture and sell the patented spoon-in-lid product to a third party and knowingly permitted and encouraged Visy to continue to manufacture and supply that product to the third party. Visy began supplying these products to one of Sealed Air’s customers in about mid-2014. Sealed Air became aware of that soon after and, unsurprisingly, wrote to Visy, disclosing its exclusive licence and demanding that Visy cease exploiting the patent. It also wrote to Auslid demanding that Auslid revoke its licence to Visy.

In short, Visy’s defence was that it held the belief that Auslid was entitled to license it because of representations made by a Mr de Souza for Auslid to the effect that Sealed Air had itself breached the licence by working outside their permitted territory on multiple occasions and that Auslid would provide an indemnity and “hold harmless” letter or agreement to Visy and would defend any claim of breach of agreement by Sealed Air. Mr de Souza told Visy that Sealed Air’s complaints were without any substance and the agreement between Sealed Air and Auslid no longer applied.

The primary question for Kenny J was whether Visy intended to (and in fact did) induce Auslid to breach its contract with Sealed Air. Her Honour noted that actual knowledge typically will satisfy the requisite intention “but where knowledge rises to the level of ‘reckless indifference’ or ‘wilful blindness’, the question of intention will be one to be determined in all the circumstances of a particular case.” That is, Visy would have a good defence if it could establish that it had a bona fide belief reasonably entertained that there was no contract between Auslid and Sealed Air because the contract had been terminated or Auslid was otherwise permitted to grant the rights to Visy, notwithstanding the contract between Auslid and Sealed Air. Her Honour also accepted Lindgren J’s analysis in Allstate Life Insurance Company v Australia and New Zealand Banking Group Ltd [1995] FCA 1368; 58 FCR 26 that “a person’s ‘knowledge’ that what he is inducing will constitute a breach of contract and his ‘intention’ to induce a breach of contract by what he is doing refer to one and the same thing. After all, ex hypothesi, the alleged tortfeasor’s acts are intentional, a breach of contract occurs, and the acts induce the breach. Against that background, ‘knowledge’ and ‘intention’ that the breach will result from the acts do not signify any relevant distinction.”

Kenny J also accepted Visy’s contention that in some circumstances, there may be a finding of honest belief (that there would be no breach), notwithstanding that the belief exhibits a high degree of credulity – that is, a tendency to be too ready to believe that something is real or true when it is not. However, the question of credulity is to be assessed in light of the qualifications and experience of the person who held the belief. In this case, that person was a qualified and experienced in-house solicitor of Visy.

Her Honour concluded that an experienced and qualified in-house solicitor could not have reasonably held the view that Auslid was not in breach of its agreement with Sealed Air and so concluded that the belief was not genuinely held. Her Honour held that “I am not persuaded that an experienced commercial solicitor, such as Mr Stein, would have believed on the basis of what Mr de Souza had communicated to him that there were reasonable grounds to believe that the contract between the applicant and Aus-Lid had been repudiated. For the reasons set out below, it does not seem to me that the conversation that Mr Stein said he had with Mr de Souza on 9 September 2014 improves Visy’s position.” In any event, her Honour found that even if Visy did not have actual knowledge, it acted with wilful blindness or reckless indifference and that that was sufficient to establish the tort of interference with contractual relations.

Visy also argued that the inducement must precede the breach of contract, because it argued the breach by Auslid in granting Visy a right to exploit the patent was prior to Visy being aware of the contract (such that Visy could not have induced a breach of contract it was unaware of). Kenny J disagreed. Her Honour observed that it “may be accepted that the dealings between Visy and Aus-Lid began without Visy knowing that Aus-Lid’s grant of a licence to it breached a contract with [Sealed Air], so that Visy could not then be liable in tort. When, however, Visy gained this knowledge in September 2014, Visy continued to induce or procure Aus-Lid to breach this contract by the continued payment of royalties for its continued manufacture and supply of its patented spoon-in-lid. In this circumstance, there was an actionable interference on Visy’s part with Aus-Lid’s contractual obligations to the applicant […]” (citations omitted).

Accordingly, her Honour treated Aus-Lid’s breach as a continuing one which was induced by Visy when Visy was given sufficient information regarding the contract to know a breach was occurring. In any event, Visy later entered into an agreement with Aus-Lid in full knowledge of the existing agreement between Aus-Lid and Sealed Air and that in and of itself was an unlawful inducement to breach. Visy was ordered to pay damages to Sealed Air in the sum of $1,635,417.

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