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The problem with IP holding companies

It is not unusual for reasons including administrative efficiency, tax planning, or protection against insolvency to establish a company within a group to be the owner of all intellectual property owned by group companies. A recent example in the United States however, is a timely reminder of the difficulties that such IP holding companies can suffer when seeking to recover damages for infringement of intellectual property rights held by them but exploited by group companies. Similar difficulties arise in an Australian context. The decision of the US Court of Appeal for the Federal Circuit in Poly-America, LP v GSE Lining Technology, Inc., 383 F.3d 1303 (Fed Cir 2004) represents an important precedent in IP law. In the case, relevant patents to landfill liners were held by Poly-America. The company commenced infringement proceedings in respect of those patents against GSE Lining Technology Inc., which was found by the US District Court for the northern District of Texas to have infringed the relevant patents. Poly-America was awarded damages of US$7.15 million in lost profits and a reasonable royalty of US$5.08 million. The issue that the Appeals Court had to consider was whether the District Court improperly permitted Poly-America to recover lost profits on sales made by Poly-Flex, a related sister corporation – there being no sales of relevant products by Poly-America. From the Appeals Court judgement, it appears that Poly-Flex was a non-exclusive licensee of the relevant patents from Poly-America and in that capacity was granted certain contractual rights including a right of enforcement concerning claims for past damages as well as the right to sub-license. Poly-Flex was also entitled to, and did, assign those rights to Poly-America; it was entitled to collect damages accruing from any infringement of the relevant patents. Section 122 of the Australian Patents Act 1990 provides that ‘the relief which a court may grant for infringement of a patent includes an injunction … and at the option of the plaintiff, either damages or an account of profits’. The US and Australian concept of damages is the same, in that in each country they are a court awarded sum of money which seeks to place a plaintiff in the position they would have been in had the relevant legal wrong not occurred. As in the Poly-America case, an Australian patentee would therefore be entitled to lost profits under the umbrella of ‘damages’ as long as the patentee sold some products, the profits of which would have been lost due to the infringing sales. The case highlights the importance of considering a matter that is frequently not uppermost in the minds of those planning an intellectual property holding company. It also draws attention to the need to ensure that there is proper alignment between the operational needs of the companies in a group structure and the intellectual property holding company itself. Adam Liberman, Partner and Andrea Fung, solicitor For more information contact Tony Joyner, Partner 9211 7777

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