07 August 2020

Full Federal Court clarifies limits on the ability of an exclusive licensee to sue for infringement of a patent

This article was written by Sarah-Jane Frydman, Luke Hawthorne and Kim O'Connell.

In what may be the final chapter of the long-running dispute concerning Lundbeck’s patent for its blockbuster antidepressant Lexapro®, generic pharmaceutical company Sandoz has successfully appealed to the Full Federal Court of Australia.  The appeal overturns the first instance decision which found that Sandoz had infringed the patent and awarded the patentee H Lundbeck A/S (Lundbeck) (a Danish company) and its Australian subsidiary, Lundbeck Australia Pty Ltd (Lundbeck Australia) $17.6 million in damages (plus interest). 

The Full Court’s decision hinged on the construction of a settlement agreement between the Lundbeck companies and Sandoz, entered into more than a decade ago.  While the Full Court canvassed a number of interesting and significant patent law issues, this alert will only examine the aspect of the decision concerning whether Lundbeck Australia was an exclusive licensee of the Lundbeck patent and, if so, whether it had the ability to sue for infringement in the unusual circumstances that arose in this case. 

Rights of the exclusive licensee

The Patents Act 1990 (Cth) confers the general right to sue for infringement on the patent holder and an exclusive licensee.  However, the rights of a patentee and exclusive licensee are not, on the face of the Act, identical in circumstances where the patent expires and then an extension of term is granted. 

Section 79 provides that, if a patentee applies for an extension of term and the term expires before the application is determined, in the event the extension is ultimately granted, the patentee has the same rights to start proceedings in respect of an act done between expiration and the day the extension was granted as if the extension had been granted at the time the act was done.  The provision does not expressly extend to exclusive licensees and the Full Court had to consider whether it impliedly confers the same right it confers on the patentee on an exclusive licensee. 

Factual background

The proceedings have a long and complex history.  In 2009, the Full Federal Court upheld a first instance finding Lundbeck’s patent for escitalopram (marketed as Lexapro®) had been invalidly extended.  Lundbeck’s application for special leave to appeal to the High Court was subsequently refused, the extension of term of the escitalopram patent was removed from the Register and the patent expired at the end of its 20-year term (being 13 June 2009). 

On 12 June 2009, being the day after the Full Court handed down its decision and one day before the original term of the escitalopram patent was due to expire, Lundbeck applied for a second extension of term on an alternative basis, together with an extension of time in which to make that application.  By that time, Sandoz and three other generic companies were preparing to, and did, after expiry of the standard term of the patent, launch their own generic escitalopram products.  Lundbeck later succeeded in obtaining both an extension of time and second extension of term.

As a result, in 2014, Lundbeck and Lundbeck Australia commenced proceedings for patent infringement against the four generic companies in respect of their generic sales from the expiry of the standard term of the patent on 13 June 2009 to the end of its extended term on 9 December 2012.  That claim was heard before Justice Jagot in 2018 and three of the four generic companies settled before, or shortly after, the trial.  Her Honour’s finding that Sandoz had infringed the patent gave rise to this appeal.  

Critically, on 13 April 2006, Sandoz had brought a claim for revocation of certain claims of the patent and the removal of the first extension of term from the Register.  That proceeding was settled in late February 2007 pursuant to a settlement agreement.  The Full Court, in this appeal, held that under the settlement agreement, Sandoz had been granted an irrevocable non-exclusive licence to the patent from two weeks prior to the expiry of the patent (whatever date that was ultimately held to occur). 

The settlement agreement

The key question for the appeal was the point at which the licence under the settlement agreement was triggered.  The Full Court found that the settlement agreement granted Sandoz an irrevocable non-exclusive licence from 31 May 2009 if the patent expired on 13 June 2009, and that the licence was not contingent on there being no extension of term granted after the patent expired.  This was a question of contractual construction and was extensively contested by the parties, but is not the focus of this alert.

Was Lundbeck Australia an exclusive licensee with standing to sue for infringement?

The primary judge found that Lundbeck Australia was the exclusive licensee of Lundbeck pursuant to a deed between the two entities.  Importantly, the only acts of infringement alleged by Lundbeck were acts that took place after the patent had expired and before the extension of the term was granted.  Any entitlement that Lundbeck Australia had to bring infringement proceeding against Sandoz therefore depended on the operation of s 79 of the Patents Act 1990 (Cth) (the Patents Act). 

There were two contentions relied on by Sandoz before the primary judge that related to Lundbeck Australia’s standing as exclusive licensee, both of which her Honour rejected:

  • first, that Lundbeck Australia could not bring the proceeding heard by her Honour because the source of the right to bring such proceedings was found in s 79 of the Act which conferred a right to start proceedings on the patentee but not on an exclusive licensee; and
  • second, that at no material time was Lundbeck Australia an exclusive licensee of the Patent.

Who has standing to sue under section 79 of the Patents Act?

Justice Jagot concluded that an exclusive licensee has the same rights to commence a proceeding under s 79 as a patentee.  In essence, her Honour considered that the patentee’s exclusive rights, as enlarged by s 79, include the right to start proceedings for infringement, and that those rights were capable of assignment to an exclusive licensee.  If, in accordance with the express terms of s 79, the patentee has “the same rights to start proceedings” at the relevant point then the patentee must be capable of creating an exclusive licence which also gives the exclusive licensee the right to start proceedings for infringement in respect of acts done during the relevant period.

The Full Court overturned this finding.  The Full Court reasoned instead that, on the basis of ordinary principles of statutory construction, s 79 should be interpreted in accordance with its ordinary meaning and that, by its terms, that section does not confer on an exclusive licensee any right to commence proceedings in respect of an act done during the relevant period (being the period after expiry of the patent and prior to an extension of term being granted).  The Court rejected Lundbeck’s submission that such a result would be contrary to the intention of the legislature.  On the contrary, the Court considered it to be consistent with the potential uncertainty surrounding the rights of an exclusive licensee after a patent has expired. 

Variation of the Exclusive Licence Deed

The Full Court agreed with Justice Jagot that there was no evidence that the deed between Lundbeck and Lundbeck Australia, which constituted an exclusive licence, had been varied by the settlement agreement with Sandoz; the Court found that the settlement agreement did not constitute evidence that Lundbeck Australia had relinquished any of the rights conferred on it by the deed.  This was notwithstanding the fact that by clause 3 of the settlement agreement, Lundbeck and Lundbeck Australia granted Sandoz an irrevocable, non-exclusive licence to the patent.  Somewhat curiously, particularly given that Lundbeck jointly and severally purported to confer rights under the settlement agreement which were inconsistent with the exclusive rights to exploit the patent previously granted, the Full Court did not consider this detracted from or varied Lundbeck Australia’s rights as exclusive licensee under the earlier deed.

Implications

This decision continues the recent judicial trend to treat an agreement as conferring the status of an exclusive licence if it evinces an intention to do so interpreting the scope of licences with some flexibility where global intercompany arrangements are involved.  This is typified by the Court’s conclusion that, in some circumstances, the grant of a non-exclusive licence (such as that granted to Sandoz under the settlement agreement) will not deprive an exclusive licence of its character as such.  The Court’s comments on this point require a re-examination of the previously accepted position, namely, that a licence will not be an exclusive licence if there is any “reservation of rights” to the patentee or any other person.

On other points, the Full Court in this decision took a more orthodox approach; in particular, in the Court’s comment that it did not consider there to be any inconsistency (or at least, inconsistency that justified looking beyond the plain language of the provision) in accepting that there are some situations where the patentee can bring infringement proceedings, but an exclusive licensee cannot.

The ability of an exclusive licensee to bring proceedings for infringement is a commercially important right and the clarity provided in the Full Court’s decision is helpful to drafters of exclusive licence arrangements and those contemplating arrangements that are to co-exist with existing exclusive licence arrangements.

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