In Orion Corporation v Actavis Pty Ltd (No 3)  FCA 1373, the Federal Court has provided practical guidance on drafting an exclusive patent licence to ensure the licensee has standing to sue for patent infringement, while maintaining existing commercial arrangements. Justice Rares held that certain agreements between Orion, Novartis and Novartis Australia successfully set up an exclusive licensee and sub-licensee arrangement which gave Novartis and Novartis Australia standing, while also giving effect to the parties' commercial goals. This decision indicates that commercial 'work arounds' in this area are possible.
We have previously posted (here and here) about the landmark decision on this issue - Bristol-Myers Squibb Company v Apotex Pty Ltd (2015) 228 FCR 1 (BMS v Apotex). In BMS v Apotex, the Full Federal Court adopted an "all or nothing" approach - to be an exclusive licensee, a party must possess all rights within the meaning of the word 'exploit' as defined in the Patents Act. This case is the first to substantively apply BMS v Apotex.
Orion and Novartis had formal commercial agreements in place since 2000 that expressly reserved manufacturing rights for the patentee, Orion. In light of the issues raised in the BMS v Apotex litigation, in March 2014 Orion and Novartis entered a new agreement which described the rights granted to Novartis as:
an exclusive licence under the Patent from the date of the grant thereof to exploit (as that term is defined in Schedule 1 to the Patent Act 1990) … to the exclusion of all other persons
Importantly, instead of reserving any patent rights for Orion (i.e. the right to manufacture), the same commercial effect was achieved by Novartis promising to purchase the products the subject of the patent from Orion as consideration for the licence. Separately, Novartis granted an exclusive sub-licence to Novartis Australia.
Actavis argued that Novartis and Novartis Australia did not have standing to sue on the basis that the new agreement did not substantively change the original arrangement, which Novartis and Novartis Australia conceded did not give them standing.
Justice Rares disagreed with Actavis and held that the fact that Novartis was required to purchase the products from Orion did not detract from Novartis' status as an 'exclusive licensee'. His Honour pointed to the definition of 'exclusive licence' under the Patents Act, which includes the exclusive licensee 'and persons authorised by that licensee'. According to his Honour, in this scenario Orion was simply a 'person authorised' just like any other third party supplier of a product. His Honour neatly summarised the point as follows:
the identity of a supplier of goods or services that a licensee contracts with to secure the wherewithal with which to exploit a patented invention cannot convert what would be an exclusive licensee, if the supplier to the licensee were a third party independent of the patentee, into some lesser congeries of rights merely because the supplier happens to be the patentee.
Further, his Honour found that Novartis Australia also had standing to sue. The agreement between Orion and Novartis gave Novartis the right to sub-licence. Novartis exercised that right by entering into an exclusive sub-licence with Novartis Australia in March 2014. Here, his Honour focused on section 139(1) of the Patents Act which states that 'any person claiming an interest in the patent as exclusive licensee or otherwise" is a party to revocation proceedings.
This decision has already been appealed and will be heard by the Full Court in February 2016 as part of an appeal which also challenges Justice Rares' infringement and validity findings.