The Full Court of the Federal Court of Australia has handed down an important decision for those involved in patent licensing in Australia: Bristol-Myers Squibb Company v Apotex Pty Ltd  FCAFC 2.
An issue at trial and on appeal concerned whether Bristol-Myers Squibb (BMS) was an “exclusive licensee” of an Australian patent relating to the compound aripiprazole and processes for its preparation, and therefore had standing to sue Apotex for infringement.
The licence agreement granted BMS an “exclusive licence” to advertise, market, promote, sell and distribute the compound aripiprazole in its various forms, but the patentee (Otsuka Pharmaceutical Co Ltd) reserved to itself the exclusive worldwide right to manufacture aripiprazole. Apotex argued that although BMS was a licensee, it was not an “exclusive licensee” under Australian law.
For the purposes of the Patents Act 1990, an “exclusive licensee” means:
… 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 (emphasis added).
The term “exploit” is given a non-exhaustive definition, which includes the right to “make, sell, hire or otherwise dispose of [a product], use it or import it, or keep it for the purposes of doing any of those things”, or to “use” a patented method or process.
The key issue was whether BMS had the “right to exploit” the patented invention in Australia.
The primary judge held that there can only be one “exclusive licensee”, and that the legal effect of the licence must be that the patentee and all other persons are excluded from exercising the right to exploit the invention. As the licence excluded the right to manufacture aripiprazole and reserved that right to the patentee, the primary judge found that BMS was not an “exclusive licensee” under the Patents Act 1990.
Decision on appeal
On appeal, BMS argued that despite not having the right to do all the activities identified in the definition of “exploit”, it was nevertheless an “exclusive licensee” in respect of some (but not all) of those activities. In support of this argument, BMS pointed to the fact that the definition of “exploit” uses the word “or” in connection with the list of activities. BMS argued that it therefore had standing, in addition to the patentee, to sue Apotex for doing the activities for which BMS was an exclusive licensee under the agreement.
The Full Federal Court rejected this argument, holding that the “right to exploit” is a single indivisible right and that the non-exhaustive definition of “exploit” describes the content of the right but is not intended to create separate rights in relation to each of the identified activities. The Full Federal Court upheld the primary judge’s view that the definition of “exclusive licensee” recognises the twin rights given to a patentee, namely the right to exploit an invention and the right to authorise others to exploit the invention. As the licence agreement did not exclude the patentee from exercising the exclusive right to exploit the patented invention, BMS was not an “exclusive licensee” under Australian law.
The decision highlights the importance of ensuring that patent licences are drafted to reflect the commercial intentions of the parties. If the licensee is intended to have standing to sue for infringement in Australia, the licence must clearly confer on the licensee, to the exclusion of the patentee and all other persons, the right to exploit the patented invention in Australia.
The Full Federal Court noted that the word “exploit” means the activities referred to in the definition and other activities that might fall within the meaning of “exploit”. It is therefore critical that the parties to an exclusive licence agreement identify the “right to exploit” as the right which is the subject of the licence. From an Australian perspective, the same commercial outcome would have been achieved by granting BMS the right to exploit the Australian patent and granting an exclusive sub-licence to the patentee to manufacture aripiprazole. BMS would have then been entitled to sue for infringement in its own name.
If your patent licence agreement is “exclusive”, but only in relation to particular rights or fields of use, you will not be an “exclusive licensee” under Australian law. In those circumstances, licensees must ensure that the agreement contains appropriate mechanisms to compel the patentee to enforce the patents in Australia. Please contact us if you have any concerns about the enforceability of the licensee’s rights under a licence agreement including Australian patents.