The Full Court of the Federal Court (Besanko, Jagot and Nicholas JJ) has now unanimously upheld the decision of Justice Yates that a licensee cannot be an exclusive licensee, with standing to bring infringement proceedings under the “exclusive licensee” provisions of the Patents Act 1990 (Cth) (PatentsAct), if any residual rights are reserved for the patent holder (or any other person).
The Full Court confirmed that there can only be one “exclusive licensee” in respect of a patent and that the right to “exploit” a patent is a single indivisible right.
BACKGROUND TO THE CASE
In 2001, Bristol-Myers Squibb Company (BMS) was granted the exclusive right to advertise, market, promote, sell and distribute aripiprazole, (a drug used in the treatment of schizophrenia) in every country in the world except for the United States and the European Union.
These rights were granted under licence by Otsuka Pharmaceutical Co Ltd (Otsuka), the holder of the registered Australian patents relating to the drug.
However, Otsuka reserved for itself the worldwide right to manufacture aripiprazole in its various forms.
In 2009 BMS commenced patent infringement proceedings in Australia against a third party, Apotex Pty Ltd (Apotex), on the basis that it was an “exclusive licensee” and therefore had standing to bring infringement proceedings under the Patents Act.
THE RULING OF THE FULL COURT
The Patents Act grants a patent holder the exclusive right to “exploit” a patent in the patent area. The definition of “exploit” includes the following activities:
- if the patented invention is a product, to make, hire, sell (or otherwise dispose of) the product, offer to make, sell, hire (or otherwise dispose of) it, use and import it and keep it for the purpose of doing any of those things; or
- if the patented invention is a method or process, to use the method or process or do all of above things in respect of a product resulting from such use.
While BMS accepted that it did not have the right to undertake all of the activities captured in the definition of “exploit” (such as the right to make the drug) it argued that this did not mean that it was not an exclusive licensee. BMS argued that where a licensee has an exclusive licence with respect to one or more (but not necessarily all) of the activities included in the definition of “exploit,” that licensee has an “exclusive licence” (and therefore also has standing to sue for infringement). On BMS’ argument, there could be multiple “exclusive licensees” in respect of a single patent.
The Full Court rejected this argument and found that the right to “exploit” a patent is a “single indivisible right”. The word “exploit” is not intended to create separate rights in relation to each of the activities described above. The Full Court agreed with Justice Yates’ finding that an exclusive licence cannot be one that reserves to the patent holder, or any other person, any residual right with respect to the exploitation of a patent, and that it followed that there could only be one exclusive licensee.
Therefore, while BMS was a licensee, it was not an exclusive licensee under the Patents Act (as it had not been granted the exclusive right to “exploit” the relevant patent in full). BMS therefore did not have standing to sue Apotex for patent infringement.
In the event that it is intended for a licensee to have the right to enforce a patent in its own name, careful contractual drafting is required.
In order for a licence to be exclusive, a licensee must be granted exclusive rights in relation to all of activities included in the definition of “exploit” in relation to the patent in the patent area. If any residual rights are reserved for the patent holder (or any other person) under a licence, that licence will not be “exclusive” and the licensee will not have standing to sue for infringement.
In light of the Full Court’s decision:
- multiple “exclusive licensees” cannot exist in relation to a single patent (for example, if one licensee has the exclusive right to manufacture a product which is the subject of a patent, and another licensee has the exclusive right to distribute that product, neither party will have an “exclusive licence” giving rise to the right to sue for patent infringement under the Patents Act). Therefore, careful consideration should be given to who will commence and control patent infringement litigation in situations where the patentee has more than one licensee; and
- licensees under an existing licence which does not exclusively confer the right to “exploit” the patent to the exclusion of all others (including the patent holder) may wish to consider whether a variation to the licence may need to be agreed with the licensor, if the expectation was that the licensee would be an “exclusive licensee” under the Patents Act.