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Is the Licensor of a Patent Licensing Contract Required to Notify the Licensee to Pay the Patent Maintenance Fees?
In exclusive patent licensing contracts, it is common to stipulate that patent-related fees should be borne by the licensee. However, in the absence of any other stipulations, it would be difficult to determine whether the licensor (i.e., the patentee) should be responsible for managing and maintaining the patents. That said, on June 25, 2024, Taiwan's Supreme Court issued a civil judgment (No. 113-Tai-Shang-334) sustaining the holding of the second-instance judgment (No. 111-Ming-Chung-Shang-33) of the Intellectual Property and Commercial Court ("IP Court"), which appears to confirm that the licensor is responsible for the management and maintenance of the validity of its patents. The IP Court's judgment further held that based on the licensor's responsibility for managing and maintaining the validity of the patent, the licensor is required to notify the licensee to pay the patent maintenance fees within the contract term; however, if the licensee has appointed another firm to manage the patents (in other words, the firm originally appointed to manage the patents no longer does so), the licensor no longer bears this responsibility.
The facts of this case are that company A (the licensee) and patentee B (the licensor) signed a technology transfer and licensing contract (the "Subject Contract"), agreeing that "(t)he patent applications of the concerned technical content shall be filed by patentee B, and all related fees will be paid by company A." The scope of the exclusive license under the Subject Contract includes the Taiwanese and Japanese patents applied for and granted at that time, as well as the United States and European patents applied for and pending examination. After the Subject Contract was signed, company A paid the maintenance and annual fees for the patents upon notification by patentee B. Subsequently, a Japanese patent among the licensed patents was extinguished owing to non-payment of the necessary fees. Company A then sued patentee B for damages on the grounds that patentee B failed to timely notify company A to pay these fees.
In the first instance of this case, the Taiwan Taichung District Court, in its judgment No. 111-Zhizi-7, accepted the claim of company A (the plaintiff). Company A argued that although the Subject Contract stipulated that the concerned fees should be borne by company A, company A only paid them in accordance with the notification from patentee B (the defendant), and it would then be patentee B's responsibility to ensure the payment of any fees in various countries to maintain the effect of the patents. Therefore, patentee B should be responsible for the extinguished Japanese patent owing to the failure to pay the necessary fees. While company A did not ask why the to-be-paid amount of fees in patentee B's notification was reduced and did not notice that the Japanese patent fees had not been paid, such failure was not attributable to company A because company A's payment was wholly dependent upon patentee B's notification. Even if company A had noticed the same and reminded patentee B, it would have been just a good-faith reminder, not an obligation to be borne by company A. Hence, it would be unreasonable to assign contributory negligence to company A. Thus, the first-instance court ruled that patentee B should compensate company A for damages.
After the case was appealed to the IP Court, the IP Court reversed the first-instance judgment and dismissed company A's claim, under civil judgment No. 111-Ming-Chung-Shang-33. Although the IP Court agreed that patentee B was responsible for managing and maintaining the validity of the patents based on the Subject Contract and therefore was ancillarily obligated to notify company A to pay the maintenance fees, this obligation no longer existed because company A had requested to change the patent firm managing the patents. Accordingly, the extinguishment of the Japanese patent due to the non-payment of fees cannot be attributed to patentee B, so patentee B is not liable for incomplete performance. The IP Court's reasoning is outlined below:
1. Once a contract is established and comes into effect, the debtor shall bear not only the principle performance obligations but also the ancillary obligations. The latter are derived from the principle of good faith and shall include the obligation to assist and inform the creditor to realize said creditor's interest gained from the performance (referring to the Supreme Court's judgment No. 98-Tai-Shang-1801).
2. Whether the patents continue to be valid will affect whether company A, the licensee, can exclude possible infringement by third parties, based on company A's position as exclusive licensee. This will also affect the payment of licensing fees and derivative profits calculated based on annual sales volume. The above factors would affect patentee B's (the licensor's) fulfillment of its primary performance under the Subject Contract. Although the Subject Contract stipulated that the subsequent payment obligation to maintain the effect of the patents should be paid by company A, this did not preclude patentee B from being responsible for the management and maintenance of the validity of the patents based on its position as the exclusive licensor.
3. Before the parties changed the patent firm that managed the licensed patents to the patent firm entrusted and designated by company A, the maintenance or annual fees for the patents were to be paid by company A upon notification by patentee B. In accordance with the Subject Contract, it was patentee B's ancillary obligation to notify company A to pay the fees during the term of the Subject Contract to maintain the effect of the patents.
4. However, company A subsequently applied to change the patent firm that managed the patents, and patentee B instructed the original patent firm to transfer the licensed patents' relevant files and information to the new patent firm. Thus, upon the date of the transfer, patentee B was relieved of its original ancillary obligation to notify company A to pay the fees to maintain the effect of the Japanese patent, which was then extinguished owing to the non-payment of fees. Since the Japanese patent was no longer under the control of patentee B or the original patent firm, the extinguishment cannot be attributed to patentee B.
5. Company A is required to pay the patent maintenance fees in accordance with the Subject Contract. This means it is company A, not patentee B, that has the authority to determine whether to continue to pay the fees to maintain the effect of the patents. Upon company A's changing the patent firm that manages the patents, company A knew that it should pay the necessary fees for the Japanese patent even if company A had not been notified to do so for quite a long time; moreover, company A did not contact patentee B or the new patent firm. This resulted in the Japanese patent becoming extinguished. In sum, company A, the plaintiff, should be responsible for the failure to pay the fees for the licensed Japanese patent.