1. Introduction

The High Court has delivered the latest instalment in Lundbeck and Sandoz’s lengthy saga concerning escitalopram. The particular circumstances giving rise to this dispute are unique, however, the High Court’s approach to interpreting a patent licence granted by Lundbeck to Sandoz should be considered when preparing patent licences.

The High Court’s decision may also encourage patent licensees (and patentees) to add misleading and deceptive conduct claims relating to patent infringement, and lead (potentially significant) evidence supporting those arguments.

2. Background

H Lundbeck A/S (Lundbeck Denmark) owned a patent relating to the pharmaceutical substance escitalopram. This patent expired on 13 June 2009.

In February 2007, Lundbeck and Sandoz Pty Ltd entered a Settlement Agreement that granted Sandoz an irrevocable non-exclusive licence to the patent from 2 weeks prior to the expiry of the patent. This term, set out below, contemplated the uncertainty surrounding the expiration date of the patent, with different possible effective dates reflecting different possible extensions of term:

3 Licence to exploit the Patent

(1) Lundbeck Denmark and Lundbeck Australia jointly and severally grant Sandoz an irrevocable non-exclusive licence to the Patent effective from:

(a) 31 May 2009 if the Patent expires on 13 June 2009;

(b) 26 November 2012 if the Patent expires on 9 December 2012;

(c) 31 May 2014 if the Patent expires on 13 June 2014; or

(d) 2 weeks prior to the expiry of the Patent if the Patent expires on a date other than a date described in clause 3(a) to (c).

As many readers will be aware, in February 2007, the patent had a contested extension of term, which was later found to have been incorrectly made. After expiry of the patent, Lundbeck Denmark pursued a different extension of term. More details of this history are available in the multiple judgments delivered during the course of Lundbeck and Sandoz’s dispute. The dates specified as potential effective dates reflect the different possible expiry dates depending on what patent term extension was available.

Ultimately, on 25 June 2014, Lundbeck Denmark obtained the desired extension of term of the patent. Pursuant to this extension, the patent had a new expiry date of 9 December 2012. By that time of course, this date had passed.

Sandoz sold its escitalopram throughout the period from 15 June 2009 to 9 December 2012.

On 26 June 2014, Lundbeck Denmark, along with Lundbeck Australia Pty Ltd, commenced proceedings against Sandoz alleging infringement of the escitalopram patent.

3. Issues determined by the High Court

3.1  Scope of licence

Sandoz argued that the licence granted in the Settlement Agreement permitted its sale of escitalopram during the extended patent term. At first instance, the primary judge found the licence expired, with the patent, on 13 June 2009. This was overturned by the Full Court on appeal, which found Sandoz was licensed to sell escitalopram during the extended term of the patent.

The High Court construed (at [60]) the licence granted in the Settlement Agreement (extracted in the Background above) to:

… confer on Sandoz no more than permission to sell pharmaceutical products containing escitalopram during the period which commenced on 31 May 2009 and which expired with the expiration of the original term of the Patent on 13 June 2009.

In adopting this approach, the High Court (at [51]) relied heavily on the use of statutory language, stating that “[p]arties to a written contract by which they contract in respect of statutory rights can ordinarily be taken to use statutory language according to its statutory meaning”, and that the words ‘Patent’ and ‘expire’ in the settlement Agreement “took their content from the Act” ([53]).

  • Key takeaway: While the complex background arising in this case is unlikely to arise often, in settling any patent litigation involving patents for pharmaceutical substances that have, or may obtain, extensions of term, the parties should consider whether it is appropriate to minimise uncertainty by expressly addressing whether the licence extends to the patent during any extended term.

More generally, in licence negotiations licensees in particular may want to ensure that the duration of licence terms are more expressly defined. For example, the parties may seek to avoid an analogous construction being adopted to end a licence if a patent lapses but is subsequently revived, or including a more general permission to use the product / method of interest (rather than merely a licence to the patent itself).

3.2  Whether section 79 of the Patents Act enables an exclusive licensee to sue for infringement

Section 79 expressly contemplates that a patent the subject of an application for an extension of term may (like the patent the subject of this proceeding) expire before that application is determined. Section 79 provides that, in such a case, the patentee can start proceedings in respect of an alleged infringement occurring between expiration of the patent and grant of an extension.

The High Court considered that this is only a right to commence patent infringement proceedings relating to actions occurring between expiration of the patent and grant of an extension. The provision is drafted only by reference to the patentee, and so only the patentee has standing to commence infringement proceedings.

In Australia, only the patentee and exclusive licensee have standing to commence proceedings for patent infringement. The Courts have applied a strict approach to identifying exclusive licensees. Broadly, to have standing, an exclusive licensee must be granted all rights to exploit a patent, including to the exclusion of the patentee. So, for example, having exclusive rights in respect of some rights protected by the patent is not sufficient. This approach creates difficulties for licensees that do not meet the strict test to qualify as an exclusive licensee.

  • Key takeaway: the ability for exclusive licensees to participate as parties in patent infringement proceedings can have important flow on consequences to recovery of compensation (if infringement occurs) and legal costs. Generally, patent term extensions are obtained well before patent expiry, so this may only be relevant in rare cases. Where it is relevant, it is an additional factor for licensees and patentees to consider and ensure potential implications for available remedies and costs are addressed.

3.3  Whether Sandoz engaged in misleading and deceptive conduct

Lundbeck Australia’s subsidiary CNS Pharma Pty Ltd was authorised to sell generic escitalopram. CNS Pharma alleged that Sandoz engaged in misleading and deceptive conduct, in contravention of s18 of the Australian Consumer Law, by either neglecting to warn its customers that use of its escitalopram may infringe Lundbeck Denmark’s patent, or that Sandoz impliedly represented to customers that they could use the products without infringing the patent.

The primary judge found Sandoz had engaged in misleading and deceptive conduct. As the Full Court found there was no patent infringement, CNS Pharma’s case could not be made out.

The High Court, in finding infringement, reopened this issue. The High Court majority held that a finding Sandoz engaged in misleading and deceptive conduct could not be sustained, as there was insufficient evidence of key facts required to substantiate the claim.

  • Key takeaway: consumer law claims based on allegations of misleading and deceptive conduct are becoming a more common feature of Australian patent litigation. Often, these claims are included in response to the limited scope for licensees to be party to patent infringement proceedings (see above), as those licensees will satisfy the broader standing requirements for a consumer law claim. This opens a more direct pathway for a licensee to seek compensation for harm it has suffered as a result of infringing conduct.

The High Court decision reinforces the potential availability of consumer law claims for licensees. It also highlights the evidentiary difficulties that need to be addressed to succeed in such a claim.