Overview of the implications of the QUANTA COMPUTER, INC. V. LG ELECTRONICS, INC. decision of the drafting of licence agreements from a Canadian perspective

OVERVIEWOFTHEIMPLICATIONSOFTHE
QUANTACOMPUTER,INC.V.LG
ELECTRONICS,INC.
DECISIONONTHEDRAFTINGOFLICENSE
AGREEMENTSFROMACANADIANPERSPECTIVE

FRANÇOISPAINCHAUDANDCLAIRECÉBRON*
LEGERROBICRICHARD,
LLP
L
AWYERS,PATENT&TRADE-MARKAGENTS

I-TheQuantadecision
OnJune9,2008,theU.S.SupremeCourtrenderedamuchawaiteddecision(the
“Quantadecision”)
1whichclarifiedtheuncertaintysurroundingtheapplicationofthe
doctrineofpatentexhaustionintheUnitedStates(whichessentiallyprovidesthat“a
patenteditem’sinitialauthorizedsaleterminatesallpatentrightstothatitem”
2)by
essentiallyremovingtheabilityofpatentownerstolimittheauthorizedsalesof
productsembodyingtheirinventions.Inordertoreachsuchaconclusion,theCourt
reaffirmedthe150yearoldlongstandingexhaustiondoctrineanditsessentialrolein
maintainingcompetitioninthemarketplace.DespitetheFederalCircuit’srecent
precedentlimitingthescopeoftheexhaustiondoctrineandextendingthepatent
owner’spowertocontroltheuseoftheproductafterthefirstsale
3,theSupreme
Court–evokingtheriskthatpatentdrafterstrytoevadeexhaustionbydrafting
methodclaims–alsoruledthatexhaustionextendedtomethodpatentsbythesale
ofanarticlethatembodiedthemethod.
Inthiscase,LGElectronics(“LGE”),throughaLicenseAgreement,licensedIntel
Corporation(“Intel”)tomanufactureandsellmicroprocessorsandchipsetsusing
threeofitscomputertechnologypatents.LGEdidnotlimitthedownstreamsaleof
IntelproductsinitsLicenseAgreement,butinaseparateagreement(the“Master
Agreement”),itrequiredInteltonotifyitscustomersthattheLicenseAgreementdid
notextendtocombinationsofIntelproductswithnon-Intelproducts.Throughsaid
requirements,LGEwasapparentlyplanningoncollectingdownstreamroyaltiesfrom
computermanufacturer’swhowouldcombinethepatentedtechnologywithother
components.Despitereceivingsuchnotice,QuantaComputers(“Quanta”)

©CIPS,2009.*FrançoisPainchaudisapartnetandClaireCébronisanassociatewithLEGERROBICRICHARD,
LLP
.,amultidisciplinaryfirmoflawyers,andpatentandtrade-markagents.PublishedintheApril2009
issueofLES.Publication62.63.
1QuantaComputer,Inc.v.LGElectronics,Inc.,no.06-937,2008U.S.LEXIS4702(U.S.June9,
2008;
86USPQ2d1673(June9,2008)).2Id.ThomasJ.,p.53SeeMallinckrodt,Inc.v.Medipart,Inc.,976F.2d700(FedCir.1992)

2
purchasedmicroprocessorsandchipsetsfromIntelandmanufacturedcomputers
usingtheIntelproductsincombinationwithnon-Intelproducts.Onceawareofthis,
LGEinitiatedproceedingsagainstQuantaforinfringementofitspatentsandbreach
ofthetermsoftheLicenseAgreement.Intryingtodetermineifpatentholderscould
seekdamagesfromdownstreamusers,boththeDistrictCourtandtheFederal
CircuitCourtfoundthattheexhaustiondoctrinewasnotapplicabletopatent
methods.TheFederalCircuitCourtfurtherconcludedthatLGEhadnotlicensed
Inteltosellitsproductstoacustomerwhowastocombinethemwithnon-Intel
productsandthattheexhaustiondoctrinecouldonlybetriggeredbyan
unconditionalsale,whichwasnotthecasehere.
TheSupremeCourtgrantedcertioraritoQuantaand,afterhearingbothparties’
arguments,unanimouslyruled(i)thatthepatentexhaustiondoctrinedidapplyto
methodpatents,(ii)thattheIntelproductsembodiedtheLGEpatentsand(iii)that
Intel,whichprovidedQuantawiththenoticestipulatingthatthelicensewouldnot
extendtothecombinationofIntelpartswithnon-Intelparts,wasauthorizedtosell
itsproductstoQuantabecausenothingintheLicenseagreementbetweenLGEand
Intelforbadeorrestrictedthesaleofproductsthatpracticedthepatents.According
totheCourt,alicensee’sauthorizedsaleofcomponentswhichsubstantiallyembody
apatentedapparatusormethodandwhichhavenoreasonableuseotherthanto
practicethepatent,exhauststhepatentholder’srights
4.TheCourttherefore
determinedthatLGEwasnotinapositiontoassertpatentrightsagainst
downstreampurchasersoftheIntelproducts.Thismeansthat,insuchasituation,a
patentholder/licensorcannotrelyonpatentlawtodemandroyaltiesfrom
downstreamcustomersofauthorisedpurchasersofcomponentsthatincludeallthe
essentialfeaturesofthepatents,norcanhesuewholesalersorretailersforselling
theproductsorend-usersforusingthem.
II-Widespreadimplications
Fromapatentlicensor’sperspectivethisstrictapplicationoftheexhaustiondoctrine
limitstheabilitytocontrolthepatentedgoodspursuanttothefirstauthorisedsaleof
theproductandthereforelimitsthepossibilitytooptimizeprofitsfromthesaleofthe
patentedtechnology.
Anadditionalresultderivingfromthisdecisionisthatamerenotificationfroma
patentlicensortoitscustomers,customersthattheyarenotlicensedtousethe
product,willnotallowsuchpatentlicensortoavoidexhaustionofhisrights.IfLGE’s
licenseagreementhadlimitedorconditionedIntel’srighttoselltheproducts,the

4“Theauthorizedsaleofanarticlethatsubstantiallyembodiesapatentexhauststhepatentholder’s
rightsandpreventsthepatentholderfrominvokingpatentlawtocontrolpost-saleuseofthearticle”
(86USPQ2dat1682)

3
outcomeofthedecisionwouldmostlikelyhavebeendifferentasthesaletoQuanta
wouldprobablyhavebeenconsideredasunauthorised.

Thereisnodoubttothefactthatthisunanimousdecisionshallhaveconsequences
onthewayslicensorsimposelimitationsonand/orrestrictdownstreamuseof
patentedproducts.
WhiletheCourtdidnotproceedtoananalysisofapatentlicensor’scontractual
rightsandexpressednoopinionwithregardtocontractdamagesortocontractual
rightsingeneral,itappearsthatdespiteanauthorisedsale,apatenteeisnot
precludedfromimposingcontractualrestrictionstoalicensee’srighttouseorsell
thepatentedproduct(andaccordinglyavoidtheapplicationoftheexhaustion
doctrine)
5.Accordinglyandbecausethepatentee’sdirectcontrolislimitedtothefirst
sale,postQuantapatenteeswillhavenochoicebuttorelyoncontractualdamages
andoncontractualrestrictionsintheirpatentlicensesfordownstreamcontrol,even
ifpatentlawmayresultinstrongerreliefwhich,asopposedtocontractlaw,is
bindingoneveryone.
Althoughitistooearlytosetoutalltheconcreteimpactsofthehighcourt’sruling,
thisdecision,anditspotentialimplicationsonpatentownersandlicensors,has
alreadybeenanalysedquitethoroughlybyquantityofobserversandconcernhas
alreadyriseninthefieldoftechnologytransferandintellectualpropertylicensing.It
isclearthatinafastgrowingtechnologicalmarketwherevariouselementsof
patentedinventionsaremanufacturedandsoldbydifferentparties,patenteeswill
wanttoknowhowtodraftanefficientrestrictive/not-too-broadlicenseagreementin
ordertoreversethecontractualequilibriumthattheQuantadecisionseemstohave
establishedinfavouroflicensees.
III-TheCanadianPerspective
BecausetheU.Srepresentsthelargestlicensingmarketworldwide,theQuanta
decisionwillclearlyhavewidespreadimplicationsforbusinessesworldwideonboth
existingandfuturelicenseagreements.
FromaCanadianperspective,thedoctrineofPatentexhaustion–whichiscommon
tomanylegalsystems–doesexistbutisnotasdeveloped
6andhasnotbenefited
fromthesamecourtanalysisorjudicialdevelopmentsasithasintheUnitedStates.

5Infootnote7ofthedecision,JusticeThomassimplymentionedthefollowing:“Wenotethatthe
authorizednatureofthesaletoQuantadoesnotnecessarilylimitLGE’sothercontractrights.LGE’s
complaindoesnotincludeabreach-of-contractclaimandweexpressnoopiniononwhether
contractdamagesmightbeavailableeventhoughexhaustionoperatestoeliminatepatent
damages”.
6RogerHUGHESandMartinKRATZ,LicensingCommercialTransactions,vol1,LexisNexis,2007,
Markham,p.1-6

4
Essentially,theapplicationoftheexhaustiondoctrineinCanadawasconfirmedin
1998,inanimportantdecisionrenderedbytheSupremeCourtofCanadawhich
ruledthatunlessclearlyandunambiguouslystipulatedinthelicenseagreement,the
saleofapatentedarticletoalicenseeentitlesthelicenseeto“passtopurchasers
therighttouseorresellthearticlewithoutfearofinfringingthepatent”
7.

BecausetheUnitedStatesSupremeCourthasnowreaffirmedthedoctrineofpatent
exhaustionandbecausepatentinfringementsuitsarenottherightremedyforthe
unlicensedsubsequentsaleoruseofapatentedproductintheU.S.,post-Quanta
CanadianpatentlicensorsdoingbusinessintheUnitedStates–whichiseighty
percentofallCanadianexports–shallclearlysufferthesameconsequencesas
Americanpatentlicensors,andaccordinglymaynotbeabletoderiveasmuch
downstreamadditionalrevenueashopedfromtheirpatentedproductswhichan
AmericanlicenseeoralicenseesellingintheU.S.isentitledtoselloruse.Thatis
whysuchCanadianpatentlicensorsmaywellneedtore-evaluatetheirpatent
licensingstrategiesandmakesurethattheycovereveryissuethatneedtobe
addressedwhiledraftingthelicenseagreement,whichisthecornerstoneofthe
relationshipbetweenthelicensorandthelicensee.

IV-ThepotentialimpactsoftheQuantadecisioninCanadafroma
licensingpointofview
Throughalicense,thepatentlicensorgrantsrightsinapatenttothelicensee.This
transferofrightsdoesnotnecessarilygivethelicenseealltherightsofthepatentee.
AsHaroldG.Foxwrotesometimeago,inCanadianlaw,alicenseis“aconsentby
anownerofarightthatanotherpersonshouldcommitanactwhich,butforthat
licence,wouldbeaninfringementoftherightofthepersonwhogivesthelicence.A
licencegivesnomorethantherighttodothethingactuallylicensedtobedone.”To
thateffect,itisinterestingtonotethatforyears,theinterpretationoflicense
agreements(well-knownandwell-establishedcommonlawinstitutions)inQuebec
sufferedmuchambiguity,aslicenseagreementshadnodeterminedjudicial
qualificationunderQuebecCivillaw.However,aftersomeyearsofuncertaintyand
discussionsastothe“status”ofsuchagreements,theauthorsaswellasthecourts
endeduprecognizingthesuigenerisnatureoflicensesunderQuebecCivillaw
8and
itsdefinitionisnowalignedwiththeCanadiancommonlawdefinition.

Althoughthepatentlicensorisinthepositionofgrantingrightstothelicensee,the
powertoinsertrestrictionsinalicenseisnotunlimited.Insertingrestrictiveclauses
inalicenseshallrequirecarefuldraftingassomerestrictionsmaybefoundabusive,

7EliLilly&Co.v.NovopharmLtd.[1998]2S.C.R.129,1878ForadditionalinformationonthestateofthelawwithregardtoLicenseAgreementsintheprovince
ofQuébec,wereferyoutoFrançoisPainchaud’sarticle:LesTransfertsdeTechnologieetleurs
clausesprincipalesdanslecadred’uncontratdelicence,2002;availableonLegerRobicRichard’s
websiteatthefollowinglink:https://www.robic.ca/publications/Pdf/291-FP.pdf

5
andaccordinglyillegal,bythecourtsundereitherofthetwolegalsystems
applicabletocontractsontheCanadianterritoryorundertheFederalCompetition
law(CanadaenjoysdualityofsystemsundertheConstitution
9whichis“common
law”basedinnineprovincesandtheterritoriesand“civillaw”basedintheProvince
ofQuebec).FromaQuebecperspective,theclauseofanadhesioncontractwhich
isunreasonablyorexcessivelydetrimentaltothelicenseeisanabusiveclause.Of
coursenotalllicenseagreementsareadhesioncontracts,butforthosewhichfall
withinthatcategory(i.e.ofwhichtheessentialclausesweredrawnupbythe
licensorandwerenotnegotiable
10),amorerigorousreviewoftheprovisionsand
theircourtinterpretationmustbemade.Althoughtheconceptofadhesioncontracts
isnotasdevelopedinCommonLawprovincesasitisinQuebec,asimilarconcept
doesexistundertheCommonLawlegalsystemwherecourtsmaynotenforce
unreasonableorunconscionableterms
11eveninextremecasesthelicense
agreementitself.
Thatiswhy,whilenegotiatingalicenseagreement,notonlywillpatentlicensors
havetomakesurethattheypreservetotalcontrolovertheirintellectualproperty,as
requiredintheQuantacase,theywillalsoneedtomakesurethattheyare
negotiatingefficientlyandproposingclearandundisputableclausesunderthe
Canadianlawapplicabletothecontract.
Theaimofarestrictivelicensewithregardtointellectualpropertyrightsistolimitthe
useofthepatentedproductbyclearlyestablishingwhatthelicenseeisentitledtodo
andwhatitisexpresslynotentitledtodo.Fromthepointofviewofalicensor,
royaltiesconstituteoneofthemostimportantelementsthatderivefromalicense
agreementandawelldraftedagreementwillenablealicensortoaccumulate
substantialfinancialreturnsontheinitialinvestment(researchanddevelopment,
draftingofthepatent,etc).
However,thepossibilityofdraftingaveryrestrictiveagreementissubjecttothe
difficultyinherenttocontractlawswhichrequiretheagreementoftheotherparty.
Whilelicensorswilllikelytrytonarrowtheirlicensee’srightstoexploittheproduct,
licenseeswillmostprobablyseetheimposingofvariousandstrictrestrictionsasan
impedimenttotherealizationoffullbenefitsfromtheuseofthelicensedproduct.
Exceptinspecificcases,licenseeswillmostprobablynoteasilyaccept(unlessata
drasticallyreducedrate)toenterintoalicenseagreementthatconsiderablylimit
theiruseofthelicensedproductsandanyfinancialgainthatcouldderivefromsuch
use.Thus,consideringthatbothlicensorsandlicenseesneedoneanotherto
developthepatentedinventionandbenefitfromtherevenuesitshallcreate,itis

9TothateffectSection92oftheConstitutionAct,1867,30&31Victoriac.3(U.K.),laysoutthe
powersoftheprovincesinCanada.
10Section1370oftheCivilcodeofQuébec,S.Q,1991,c-6411RogerHUGHESandMartinKRATZ,LicensingCommercialTransactions,vol1,LexisNexis,2007,
Markham,p.1-26

6
veryimportantthateachpartyfindsacommongroundindeterminingwhatmaybe
permittedunderthelicenseagreement.
Further,inorderforlicensorstomaintainabroadcontrolovertheirintellectual
property,itisessentialthatthecontractualrestrictionsthatareestablishedbetween
thepartiesmaybeenforceddirectlyagainstthelicenseeandnotexclusivelywith
downstreamusersasLGEtriedtodo.Thatiswhyapatentownerwhowishesto
licenseapatentmightwanttoseriouslyconsidertowhominthesupplychainthe
initiallicenseshallbeissued.Ofcourse,aspreviouslymentioned,oneofthemain
criteriashallbealicenseewhocanbestpayroyalties–andwho,inviewofthe
Quantadecision,shallaccepttopayhigherroyalties–howeverthiscriteriashould
beevaluatedfromamoreglobalperspectiveandotheroptionsmaybeconsidered
suchas:narrowingdownthescopeof“permitteduse”ofthepatentedarticleto
certaincustomers,tospecificcombinationswithotherproducts,ortoaspecific
market;signingalicensewhichwillallowthebroadestarrayofusesandthelargest
controlpossible;orlicensingthedownstreamendconsumersoftheproduct.

Ifthelicensorchoosestoallowlicenseestoassignorsublicensesomeoftherights
conferredunderthelicense,itmightwanttomakesurethatanysuchassignmentis
subjecttothelicensor’swrittenconsentinordertomaintainavetoandavoidthatits
interestsbetransferredtoacompetitorortoapartywhodoesnothavesufficient
assets
12.

Itisworthdistinguishingbetweenexistinglicensesandfuturelicensesasthe
implicationsanddifficultiestobeconsideredineachcasearenotthesame.While
draftinganewlicenseagreementimpliesmakingsurethateveryissuedecidedin
theQuantacaseisaddressedandthatthelicensorisnotdeprivedofanyremedies;
modifyinganexistinglicenseagreementmaybeslightlymorecomplicated.Indeed,
ifthelicenseagreementasdraftedistoobroadanddoesnotofferthelicensoras
muchcontractualcontrolaswouldbenecessaryinthepost-Quantaera,thelicensor
mightencounterdifficultiestoobtainthelicensee’sacceptancetoamendmentsto
theagreement.Furthermore,itresultsfromtheQuantacase,thatoncealicensor
hasagreedtoanauthorizedsale,itcannolongertrytoimposerestrictionstothe
downstreamusersastherightsareexhausted.Therefore,iftheexistinglicense
agreementhasauthorisedasale,thelicensorwillnotonlybeunabletorelyon
patentlawbutwillalsohavenofoundationtofileasuitforbreachofcontractlaw.

Finally,inadditiontotheobligationssetoutundercontractlaw,itisimportantthat,
whenseekingtoimposeorextendrestrictions,thelicensorbeverycarefulnotto
encountercompetitionissuesthatmightresultintheinvalidationofthelicense
agreement.Tothateffectandasdiscussedhereafter,competitionlawprovisions
shouldnotbeunderestimatedwhendraftingalicenseagreement.

12RogerHUGHESandMartinKRATZ,LicensingCommercialTransactions,vol1,LexisNexis,2007,
Markham,p.1-14

7

V-Thelimitsofcontractuallaw(orhowcompetitionlawmaylimitthe
possibilitytodraftrestrictivelicenses/clauses)

Thenecessitytodetermineonacase-by-casebasisthattheabuseofintellectual
propertyrightsdoesnotundulyrestraintradeisinternationallyrecognisedandis
reflectedthroughtheWTOTradeRelatedAspectsofInternationalPropertyRights
Agreement(“TRIP”)whichentitlesmemberstospecify“intheirlegislationlicensing
practicesorconditionsthatmayinparticularcasesconstituteanabuseof
intellectualpropertyrightshavinganadverseeffectoncompetitionintherelevant
market”
13.Tothateffect,Canada,asaMemberstate,hasadoptedmeasuresto
preventorcontrolsuchanticompetitivepractices,which,underTRIP’S,mayinclude
forexample“exclusivegrantbackconditions,conditionspreventingchallengesto
validityandcoercivepackagelicensing,inthelightoftherelevantlawsand
regulationsofthatMember”
14.

InCanada,section32oftheCompetitionAct
15(the“Act”),stipulatesthattheFederal
courtmaydeclarevoid(inwholeorinpart)anyagreement,arrangementorlicense
relatingtotheuseofapatent,orrestrainanypersonfromcarryingoutorexercising
anyorallofthetermsorprovisionsoftheagreement,arrangementorlicense
(amongstothers)inanycasewhereusehasbeenmadeoftheexclusiverightsand
privilegesconferredbypatentsthat,amongstothers,restrainorinjureunduly,trade
orcommerceinrelationtoanysucharticleorpreventorlessen,unduly,competition
intheproduction,manufacture,purchase,barter,sale,transportationorsupplyof
anysucharticleorcommodity.
ItappearsthattheCompetitionBureauofCanada(the“Bureau”)andtheAttorney
generalwillseektheinterventionoftheFederalcourtiftheyhaveproofofrestraint
oftradeorlessenedcompetition
16.Unfortunately,the“restraintoftradeorlessened
competition”concepthasnotenjoyedmuchdiscussioninCanadiancourts,itis
difficulttodeterminehowthissectionmaybeappliedtotheholderofapatentright.

ThePatentrightsholderatleastenjoysprimafasciaepresumptionsofferedby
section79(5)oftheAct,which,asanexceptiontotheprinciplethatatribunalmay
makeanorderprohibitingapersonfromengagingintoananti-competitivepractice,
stipulatesthat“anactengagedinpursuantonly
totheexerciseofanyrightor
enjoymentofanyinterestderivedundertheCopyrightAct,IndustrialDesignAct,
IntegratedCircuitTopographyAct,PatentAct,Trade-marksActoranyotherActof

13Section40oftheTRIPAgreementavailableonlineathttp://www.wto.org/english/docs_e/legal_e/27-
trips_04d_e.htm
14Id.15R.S.,1985,c.C-3416CompetitionBureau–IntellectualPropertyEnforcementGuidelines(2000)
http://strategis.ic.gc.ca/pics/ct/ipege.pdf

8
Parliamentpertainingtointellectualorindustrialpropertyisnotananti-competitive
act”.
ThepolicyadoptedbytheBureauisalsoofhelp:“licensinginthevastmajorityof
casesispro-competitivebecauseitfacilitatesthebroaderuseofavaluable
intellectualpropertyrightbyadditionalparties”
17.Yet,despitethefactthatthe
Bureauinsistsonthefactthatintellectualpropertyandcompetitionlawsareboth
necessaryfortheefficientoperationofthemarketplace,anabuseofintellectual
propertyrightsmayalwaysresultinviolationofsection79oftheact(abuseofa
dominantposition)
18andsuchrightsarenotexemptfromtheapplicationoftheAct.

Theonlycertaintythatcanberetrievedfromvariousguidelinesandprinciplesset
outbytheBureau
19withregardtothedraftingoflicenseagreements,isthatthe
Bureauinitsassessmentofasituationisguidedbythenecessityofprotecting
proprietaryrightsandintellectualpropertytothelargestextentpossibleinorderto
encourageinnovation,promoteeconomy,maintainacompetitivemarketplace,
obtainwidespreadeconomicalbenefits,andallowtheownersofsuchrightsto
benefitfromtheirinnovationsandinventions.Althoughthedefenceofproprietary
rightsmaysometimesleadtoabuseandmonopolies,suchdefencealsoconstitutes
thebasisofsoundcompetition.Tothateffect,theBureaudoesnotconsidera
licenseofintellectualpropertyrightstobeanticompetitiveunlesssuchanagreement
limitscompetitiontoaninferiorlevelthantheonethatwouldhaveexistedinthe
absenceofalicenseagreement
20.ThatiswhytheBureauemphasizesthe
necessityofabalancebetweentherightsthataregrantedbyvariousintellectual
propertylawsandasoundcompetitionpolicy21.

Inordertodetermineifalicenseagreementraisesacompetitionissueinthemarket
place,theBureauwilldetermineiftheclausesoftheagreement“servetocreate,
enhanceormaintainthemarketpowerofeitherthelicensororthelicensee”
22(i.e.
lessenorpreventcompetition).TheBureauwillnotconsiderlicensingagreements
involvingintellectualpropertytobeanti-competitiveunlesstheyreducecompetition
substantiallyorundulyrelativelytothemarketplacewhichwouldhaveexistedinthe
absenceofthelicense.Ifithasestablishedthatthelicenseagreementasdrafted
enticesmorethanthemereexerciseofanintellectualpropertyright,theBureau
mayinterveneundertheappropriatesectionsoftheAct.

17Id.18RichardF.D.Corley,NavinJoneja,PrakashNarayanan,TheCompetition/IntellectualProperty
InterfacePresentConcernsandFutureChallenges,March2006,
http://www.competitionbureau.gc.ca/epic/site/cb-bc.nsf/en/02285e.html
19Seehttp://strategis.ic.gc.ca/pics/ct/ipege.pdf,http://www.competitionbureau.gc.ca/epic/site/cb-
bc.nsf/en/01807e.html,http://www.bureaudelaconcurrence.gc.ca/epic/site/cb-bc.nsf/fr/01808f.html
andhttp://www.competitionbureau.gc.ca/epic/site/cb-bc.nsf/en/02285e.html#4A3
20http://www.competitionbureau.gc.ca/epic/site/cb-bc.nsf/en/02285e.html#4A321Id.22Id.

9

WhileitappearsthattheexhaustiondoctrineanditspotentialimpactsonCanadian
competitionlawhavenotbeendiscussedoranalyzedbytheBureau,itisclear–in
viewofdecisionsrenderedbytheCompetitionTribunal-thatalicensormustbe
verycarefulnottoengageinanti-competitiveactsandinbusinesspracticeswhich
createciviloffencesundertheActsuchascreatingasituationofabuseofdominant
position.Tothateffect,intheearlynineties,theCompetitionBureaurendereda
landmarkdecision
23rulingthatNutraSweethadengagedintoanti-competitiveacts
thatwerepreventingorlesseningcompetitionsubstantially.Theactsinwhich
NutraSweethadengagedinordertoextenditsmonopolybeyondthelifeofthe
aspartamepatent,includedrequiringthatitslicenseesdisplaytheNutraSweetname
andregisteredtrade-markonallproductscontainingthesweetenerinquestionand
offeringdiscountstothosewhoacceptedtodisplaysaidtrade-markontheir
products.Aftertheexpirationofthepatent,onlythosepurchasingtheproductwith
NutraSweetwereauthorizedtodisplaytheNutraSweettrade-markwhichhad
becomewell-knownandstronglyassociatedwiththesweetener.TheTribunalruled
thatcontracttermsthatimpededcompetitorstoenterintotheaspartamemarket
(suchasclausesrequiringthatpurchasersuseonlytheNutraSweetbrand,orprice
discountsfordisplayingtheNutraSweettrade-markandname),weretobe
prohibitedbecausecontrarytosections77and79oftheAct.Theprinciples
establishedinsaidrulinghavesincebeenaffirmedbytheFederalCourtofAppeal,
namelyintheCanadaPipecase
24wherethedefinitionofanti-competitiveas
establishedintheNutraSweetcase(being“anintendednegativeeffectona
competitorthatisexclusionary,disciplinaryorpredatory”
25)wassustained.

InviewofthestateofthelawinCanada,andinordertoavoidany“badsurprises”
suchasthelicenseagreementbeingdeclaredanti-competitive,alicensorshould
usecautionindraftingrestrictivelicensetermsandshouldnotunnecessarilyextend
theapplicabilityofthelicenseagreementbeyondwhatisprovidedforbythe
applicableintellectualproperty,contractualandcompetitionlegislation.Whilsta
patentholderisentitledtodraftalicenseagreementthatfacilitatesthedevelopment
ofavastandinterestingmarketforthepatentedarticle,anyrestrictionsaiming
downstreampurchasersshouldremainlegitimate.Tothateffect,inthesameway
thatalicensormustmakesurethattheprovisionsofitslicenseagreementrespect
applicablelaws,saidlicensormaynotattempttoadapttheinterpretationof
longstandingdoctrinesorrules,suchasthepatentexhaustiondoctrine,inaway
thatfavoursitsinterests.Clearly,relyingonanambiguitypertainingtothe
applicationofagivendoctrinemayendupbeingariskybusiness.

23Canada(DirectorofInvestigationandResearch)v.NutraSweetCo.(1990),32C.P.R.3d1(Comp.
Trib.)
24Canada(CommissionerofCompetition)v.CanadaPipeCorporationLtd.,2006FCA23325Id.,para.77

10
Conclusion
Asoftoday,thereiscertaintyindefiningtheextentoftheconsequencesthatwill
resultfromtheQuantacaseevenwhendealingfromtheoutsideoftheU.S.Thatis
whythescopeoftheagreementthatpartiesareabouttoenterintoaswellasany
restrictionintheagreement,mustbeclearlyandcarefullydefinedanddescribed
26.
Draftinganagreement,whilekeepingthislongstandingandundisputedprinciplein
mind,isprobablythebestwaytolimitanymisinterpretationofthecontractthatcould
leadtodisagreementsrelatingtothescopeofthelicense.

Tothateffect,itisworthreadingarecentBritishdecisionoftheHighCourtof
Justice,ChanceryDivision,inwhichJusticePeterPrescottwastoadjudicate
betweentwoconflictinginterpretationsofapoorlydraftedlicenseagreementand
determinetowhichextentthelicensorwasentitledtothepaymentofroyalties
27.
Althoughthefactsofthecaseandthejudicialissuesatstakeareverydifferentthan
thoseoftheQuantadecision,JusticePrescottprovidesuswithverywise
suggestions,universallyapplicablewhenitcomestodraftingpatentlicence
agreements,thatmayhelpavoidbusinessuncertaintyandlongandexpensive
litigation
28:
·Befamiliarwithpatentterminology;
·Donotletyourwordprocessordothethinkingforyou;
·Donotrelyexclusivelyonprecedents;
·Usepreciseandclearterminology;and
·Donotleaveanyroomtoambiguousterms.

Althoughthisadvicedoesnotprecludeanyofusfromtheconsequencesofthe
Quantadecision,itisworthreferringtoasausefulreminderofthefactthatalicense
agreementmustalwaysbedraftedwithcaution,knowingthatitisinthelicensor’s
bestinteresttodrawtermsthatareclear,straightforward,nottoolargeortoo
restrictive,ofwhichthescopeandtheapplicabilitycannotbecontestedinviewof
anyapplicablecontractualorcompetitionlaw.

26RogerHUGHESandMartinKRATZ,LicensingCommercialTransactions,vol1,LexisNexis,2007,
Markham,p.1-7
27OxonicaEnergyLimitedv.NeuftecLimited,[2008]EWHC2127(Pat)28Id.

11
ROBIC,ungrouped’avocatsetd’agentsdebrevetsetdemarquesdecommerce
vouédepuis1892àlaprotectionetàlavalorisationdelapropriétéintellectuelledans
touslesdomaines:brevets,dessinsindustrielsetmodèlesutilitaires;marquesde
commerce,marquesdecertificationetappellationsd’origine;droitsd’auteur,
propriétélittéraireetartistique,droitsvoisinsetdel’artisteinterprète;informatique,
logicielsetcircuitsintégrés;biotechnologies,pharmaceutiquesetobtentions
végétales;secretsdecommerce,know-howetconcurrence;licences,franchiseset
transfertsdetechnologies;commerceélectronique,distributionetdroitdesaffaires;
marquage,publicitéetétiquetage;poursuite,litigeetarbitrage;vérificationdiligente
etaudit.ROBIC,agroupoflawyersandofpatentandtrademarkagentsdedicated
since1892totheprotectionandthevalorizationofallfieldsofintellectualproperty:
patents,industrialdesignsandutilitypatents;trademarks,certificationmarksand
indicationsoforigin;copyrightandentertainmentlaw,artistsandperformers,
neighbouringrights;computer,softwareandintegratedcircuits;biotechnologies,
pharmaceuticalsandplantbreeders;tradesecrets,know-how,competitionandanti-
trust;licensing,franchisingandtechnologytransfers;e-commerce,distributionand
businesslaw;marketing,publicityandlabelling;prosecutionlitigationandarbitration;
duediligence.
COPYRIGHTER
IDEASLIVEHERE
ILATOUTDEMÊMEFALLUL’INVENTER!
LAMAÎTRISEDESINTANGIBLES
LEGERROBICRICHARD
NOSFENÊTRESGRANDESOUVERTESSURLEMONDEDESAFFAIRES
PATENTER
R
ROBIC
ROBIC+DROIT+AFFAIRES+SCIENCES+ARTS
ROBIC++++
ROBIC+LAW+BUSINESS+SCIENCE+ART
THETRADEMARKERGROUP
TRADEMARKER
VOSIDÉESÀLAPORTÉEDUMONDE,DESAFFAIRESÀLAGRANDEURDELA
PLANÈTE
YOURBUSINESSISTHEWORLDOFIDEAS;OURBUSINESSBRINGSYOUR
IDEASTOTHEWORLD
Trade-marksofLEGERROBICRICHARD,
LLP(“ROBIC”)