In a relatively recent flurry of decisions, the Federal Court examined a variety of agreements purporting to give exclusive rights to various licensees to exploit patents under the Patents Act 1990 (Cth) (Act). These decisions consider whether a purported exclusive licensee of a patented article is actually entitled to the rights of an exclusive licensee under the Act.

The broad issue in these cases is whether the licence agreement (or agreements) entered into by the parties validly transfer the right to exploit the patent within Australia from the patentee to the purported exclusive licensee to the exclusion of everyone else (including the patentee). Whether this right is validly transferred is crucial because only patentees and exclusive licensees have the right to bring infringement proceedings under the Act.

Key provisions

According to Schedule 1 of the Act, "exclusive licensee" is defined as:

[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.

Relevantly, where the patented invention is a product, the right to 'exploit' the invention includes rights to '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'.

In relation to standing, section 120(1) of the Act states:

Subject to subsection (1A), infringement proceedings may be started in a prescribed court, or in another court having jurisdiction to hear and determine the matter, by the patentee or an exclusive licensee.

Bristol-Myers Squibb Company v Apotex Pty Ltd (BMS v Apotex)

Bristol-Myers Squibb Company (BMS) contended that it was the exclusive licensee under an agreement with Otsuka Pharmaceutical Co Ltd (Otsuka) concerning a compound known as aripiprazole. Under the agreement, BMS was given exclusive rights to advertise, market, promote, sell and distribute aripiprazole in Australia. Otsuka, however, retained the right to manufacture the drug.

Apotex Pty Ltd (Apotex) argued that BMS did not have standing to commence the proceedings on the basis that BMS was not an exclusive licensee under the Act. The primary judge applied the case of Ex Parte British Nylon Spinners where the High Court held that, under the old Patents Act 1952 (Cth), there could only be one exclusive licensee who possessed all the rights of, and to the exclusion of, the patentee.

The Full Court of the Federal Court of Australia upheld the trial judge's findings and found that the legislature did not intend to change this position when it introduced the 1990 Act. Further, the Full Court held that the right to 'exploit' under the Act is a 'single indivisible right' and the definition simply describes the content of that right. Therefore, as BMS was not granted permission to manufacture aripiprazole, it did not have the right to exploit the drug under the Act. Consequently, BMS was not an exclusive licensee with standing to bring infringement proceedings.

GlaxoSmithKline Consumer Healthcare Investments (Ireland) (No. 2) Limited v Apotex Pty Ltd (GSK v Apotex)

GlaxoSmithKline Consumer Health Investments (Ireland) (GSK Ireland) granted the exclusive right to exploit certain Panadol products within Australia to GlaxoSmithKline Consumer Healthcare Pte Ltd (GSK Singapore), whom subsequently conferred that right to GlaxoSmithKline Australia Pty Ltd (GSK Australia).

Apotex contended that GSK Australia was not an exclusive licensee as the relevant licence was not 'granted by the patentee' (contrary to the definition of 'exclusive licensee' under the Act). Justice Beach held that, since exclusive rights under a patent are personal property, it was open to GSK Singapore to assign those rights to GSK Australia.

Turning to the relevant agreements, his Honour noted that the licence agreement expressly stated that GSK Australia had the exclusive right to exploit the patent in Australia and that GSK Ireland and GSK Singapore could not exploit the patent without GSK Australia's consent. Further, the parties expressly specified in the agreement that GSK Australia would be the exclusive licensee of the Patent for the purposes of the Act. As a result, there was an effective assignment of the right to exploit to GSK Australia under the licence and GSK Australia was therefore an exclusive licensee for the purposes of the Act.

Actavis Pty Ltd v Orion Corporation (Actavis v Orion)

In the most recent substantive decision in this area, Orion Corporation (Orion) granted a licence to Novartis Pharma AG (Novartis) to exploit a drug known as Stalevo, which is used to treat Parkinson's disease. Novartis subsequently purported to transfer those rights to Novartis (Pharmaceuticals) Australia Pty Ltd (Novartis Australia). In 2014, following the decision in BMS v Apotex, Orion and Novartis entered into an amended agreement which recognised that Novartis had the exclusive licence to exploit the patent (within the meaning of the Act) to the exclusion of all others (clause 1), in consideration for Novartis purchasing Stalevo and its ingredients exclusively from Orion or a party authorised by Orion (clause 2).

Actavis Pty Ltd (Actavis) argued that clause 2 in the amended agreement effectively reserved Orion's exclusive right under the patent to manufacture the product, such that Novartis was not an exclusive licensee. Actavis also argued that Novartis Australia did not have standing to sue as it was only a sub-licensee.

At first instance, the trial judge found that the deliberate use of statutory language in clause 1 reflected the intention of the parties that Novartis would have the rights of an exclusive licensee. In addition, the trial judge held that the parties must have intended to bring about the commercial result that Novartis could exercise the rights of an exclusive licensee, including the right to bring infringement proceedings. In respect of Novartis Australia, the trial judge found that it had standing to bring proceedings despite the fact that it was not an exclusive licensee. The trial judge reasoned that, among other things, section 120(1) was permissive and did not preclude a person other than the patentee or exclusive licensee from bringing infringement proceedings.

The Full Court upheld the trial judge's findings in respect of Novartis and found that clauses 1 and 2 of the amended agreement should be read as 'separate promises' in the sense that clause 1 represented the 'plenary rights of an exclusive licensee' and clause 2 reflected the agreement between the parties as to how Novartis would exercise its rights. The resulting agreement was therefore effective in granting the right to exploit the patent to Novartis, who then had standing to sue for infringement.

By contrast, the Full Court overturned the trial judge's findings with respect to Novartis Australia. The Court found that there was no effective assignment of rights between Novartis and Novartis Australia and therefore, Novartis Australia was not an exclusive licensee. Moreover, the Court held that the Act is specific as to who may sue for infringement (being either the patentee or exclusive licensee), and it is not 'merely indicative' of persons who may sue for infringement. As a sub-licensee, Novartis Australia did not have standing to sue for infringement and could only be a proper party to the cross-claim for revocation in the proceedings (having regard to the wording of section 139(1)).

Commercial ramifications

These decisions have fundamentally changed how licence agreements are structured. The courts have confirmed that a valid exclusive licence must transfer the whole content of the right to 'exploit' the patent to the purported exclusive licensee for that entity to have standing to bring infringement proceedings. Nevertheless, provided the whole right is transferred, parties may negotiate an agreement to place limitations on the exclusive licensee or effectively license some rights back to the patentee. Finally, these decisions clarify the position that sub-licensees of exclusive licensees are not surrogate exclusive licensees and do not have standing to bring infringement proceedings. Exclusive licences, however, can be transferred so long as the parties clearly and objectively intend to assign the right to exploit the patent within Australia.

As an indication that this issue will continue to be live, in the ongoing dispute between Alphapharm Pty Ltd (Alphapharm) and H Lundbeck A/S (Lundbeck), the Federal Court recently allowed Alphapharm to put in issue whether the Australian subsidiary of Lundbeck was an exclusive licensee with standing to sue under the Act, indicating that this issue will likely be considered further at trial. Therefore, it seems this issue will remain hotly contested for the foreseeable future.