Determination of Certain Contracts

In one line

When the patent ends, the licensee may walk away on three months' notice, whatever the contract says.

In the wording a student can write in an exam: section 141 of the Patents Act, 1970 provides that any contract for the sale or lease of a patented article, or for licence to manufacture, use or work a patented article or process, or relating to any such sale, lease or licence, may at any time after the patent or all the patents by which the article or process was protected at the time of making the contract have ceased to be in force, and notwithstanding anything to the contrary in that or any other contract, be determined by the purchaser, lessee or licensee on giving three months' notice in writing to the other party.

Why the Act gives this right

Because a licensee should not go on paying for a monopoly that has ended. When the patent expires, the invention is in the public domain and anybody may use it. A licensee who is still bound to a royalty is paying for nothing while its competitors pay nothing.

And because the contract will usually not say so. A long-term licence drafted in year three may run for fifteen years and say nothing about what happens when the patent falls. Without section 141 the licensee would be left to argue frustration or total failure of consideration, both of which are difficult.

So the Act supplies the term. It is a statutory right to determine, exercisable notwithstanding anything to the contrary in the contract or in any other contract, which is the phrase that makes it impossible to draft around.

The provision itself

Section 141(1). Any contract:

for the sale or lease of a patented article; or

for licence to manufacture, use or work a patented article or process; or

relating to any such sale, lease or licence,

may at any time after the patent, or all the patents by which the article or process was protected at the time of the making of the contract, has or have ceased to be in force, and notwithstanding anything to the contrary in the contract or in any other contract, be determined by the purchaser, lessee or licensee on giving three months' notice in writing to the other party.

Section 141(2). The provisions of the section are without prejudice to any right of determining a contract exercisable apart from this section.

Broken down

Whose right is it? The purchaser, lessee or licensee. Not the seller, lessor or licensor. The asymmetry is deliberate: the party who has lost the benefit of the bargain gets the exit.