The decision of the Full Federal Court in Bristol-Myers Squibb Company v Apotex Pty Ltd  FCAFC 2 confirms that under Australian patent law, for a licensee to have standing to commence infringement proceedings it must be an 'exclusive licensee' in accordance with the Patents Act 1990 (Cth) (Patents Act). The Full Court upheld the decision of Justice Yates in Bristol-Myers Squibb Company v Apotex Pty Ltd (No 5)  FCA 1114, finding that Bristol-Myers Squibb was not an exclusive licensee under the Patents Act, as the patentee (Otsuka) had reserved the right to manufacture aripiprazole.
The decision confirms that in order to be an exclusive licensee under the Patents Act, the licensee must be granted all the rights to 'exploit' the patent, to the exclusion of all others (including the patentee). Where a patentee, for example, reserves the right to do something with the claimed invention such as to make a product, the licensee will not be an exclusive licensee under the Patents Act and thus will not have standing to commence patent infringement proceedings.
- The case confirms the importance of considering the definition of 'exploit' under the Patents Act when granting a licensee rights to a patent.
- The case also reinforces that it is important for licensees who are 'exclusive' in a field or in relation to particular rights to negotiate an appropriate ability to direct, or at least have input into, enforcement of patent rights by licensors.
The proceeding related to a patent owned by Otsuka Pharmaceutical Co Ltd (Otsuka) in relation to a form of the antipsychotic drug aripiprazole. Bristol-Myers Squibb Company (BMS) sells aripiprazole in Australia as ‘Abilify’ under licence from Otsuka. In 2009, Apotex Pty Ltd (Apotex), a generic pharmaceutical company, began offering for sale generic-branded pharmaceutical products containing aripiprazole. BMS, as the purported exclusive licensee of the Otsuka patent, commenced infringement proceedings against Apotex. In response to BMS’s claim of infringement, Apotex contended that BMS did not have standing to bring the infringement action because it was not an 'exclusive licensee'.
Under the licence agreement between Otsuka and BMS, Otsuka granted to BMS a licence to advertise, market, promote, sell and distribute the compound aripiprazole. Importantly, however, Otsuka reserved to itself the world wide right to manufacture aripiprazole in its various forms.1
Patents Act – 'exclusive licensee'
Under section 120(1) of the Patents Act, only a patentee or an exclusive licensee has standing to commence patent infringement proceedings.
An exclusive licensee for the purposes of the Patents Act is defined to mean:
"... a licensee under a licence granted by the patentee and conferring on the licensee, or on the licensee and persons authorised by the licensee, the right to exploit the patented invention throughout the patent area to the exclusion of the patentee and all other persons".
Section 13(1) of the Patents Act states that a patent gives the patentee exclusive rights, during the term of the patent, to exploit the invention and to authorise another person to exploit the invention.
The Patents Act defines the term 'exploit' in relation to an invention as including:
- where the invention is a product–make, hire, sell or otherwise dispose of the product, offer to make, sell, hire or otherwise dispose of it, use or import it, or keep it for the purpose of doing any of those things, or
- where the invention is a method or process–use the method or process or do any act mentioned in paragraph (a) in respect of a product resulting from such use.
Trial decision of Justice Yates
As summarised in our previous article,2 Justice Yates held that BMS was not the exclusive licensee of the Otsuka patent and as such, did not have standing to sue for patent infringement.
In determining the meaning of exclusive licensee under the Patents Act, his Honour focused his analysis on the interpretation and relationship between the definition of 'exclusive licensee', 'exploit' and section 13(1) of the Patents Act. His Honour held that section 13(1) recognises that only two rights are conferred by a patent: the right to exploit the invention and the right to authorise others to exploit the invention. His Honour held that the ‘right to exploit’ conferred by the Patents Act was a single indivisible right and that the definition does not create separate rights with respect to the activities falling within the scope of the right.
Justice Yates considered that for a licence to be exclusive, the patentee and all other persons must be excluded from exercising the right to exploit the patent. His Honour noted that "[a]n exclusive licence cannot be one that reserves to the patentee or any other person any residual right with respect to the exploitation of the invention".3 The effect of this interpretation is that there can only be one exclusive licensee of a patent for the purpose of the Patents Act.
As the licence granted to BMS excluded the right to manufacture aripiprazole, his Honour held that BMS was not an exclusive licensee and consequently, did not have standing to sue for patent infringement. On the facts of this case, the exclusion from the licence granted to BMS of a right to manufacture the product was decisive and impacted on costs. Although BMS and Otsuka were ultimately successful in their infringement claim, given BMS’s lack of standing to sue, Justice Yates ordered that BMS bear its own costs of the infringement claim.
Judgment of the Full Federal Court
BMS appealed the exclusive licensee finding at first instance to the Full Federal Court. On appeal, BMS alleged that Justice Yates erred in holding that it was not an exclusive licensee and lacked standing to bring patent infringement proceedings. BMS referred to the use of 'or' in the definition of 'exploit' and submitted that, because it had an exclusive licence with respect to other activities, such as advertising and selling, it was an exclusive licensee.4
Finding against BMS, the Full Court agreed with Justice Yates’ reasoning. In particular, the Full Court stated that “the definition of the word “exploit” describes the content of a right and is not intended to create separate rights in relation to each of the identified activities”.5
What does this mean for your licence agreements?
For patent licensors
- Patent licensors need to be aware that granting a licensee the exclusive right to all the activities falling within the definition of 'exploit' under the Patents Act will have the legal effect of allowing the licensee to commence patent infringement proceeding in its own name.
- Licensors should expect that licensees who have negotiated contractual 'exclusivity' in relation to particular jurisdictions, but who are not 'exclusive licensees' within the meaning of the Patents Act will seek to amend the terms of their licence to make it truly exclusive so that they can participate in enforcement actions. If this is agreed, licensors should consider whether it is appropriate for licensor costs to be covered by the participating 'exclusive' licensee.
- Licensees seeking an exclusive licence, and who wish to be able to enforce patents as an 'exclusive licensee', should ensure that the licence agreement includes a grant of the exclusive right to undertake all the activities listed in the definition of 'exploit' in the Patents Act.
- A licence purporting to grant "the exclusive right to…" do something, such as advertise or sell a product, does not mean the licensee falls within the definition of 'exclusive licensee' for the purposes of the Patents Act.
- Under the Patents Act, exclusivity is assessed by reference to the rights granted to the licensee in Australia. A licensee therefore does not need to be granted the exclusive rights in all jurisdictions outside Australia in order to be an exclusive licensee within the meaning of the Patents Act. What is relevant for the purpose of the Patents Act is that the licensee is granted exclusive rights to the patent, to the exclusion of all others, in Australia.
- It is not always necessary for commercial efficacy for licensees to be granted an exclusive licence for the purpose of the Patents Act. Licensees need to carefully review the rights granted by the licence agreement to ensure they encapsulate all of the licensee’s intended business activities.
- Where a licensee does not have standing to commence proceedings in the event of infringement, it is important that there are clear clauses in the agreement addressing how the patent holder will respond in the event of infringement by a third party.
- The position regarding patents and exclusive licences is different to other forms of intellectual property. For example, an exclusive licensee in relation to specific copyright rights (rather than all) may enforce those rights against third parties in their own name.