For pharmaceutical companies, patent term extensions (PTEs) remain a fundamental means of compensating them for the erosion of the terms of their patents due to the regulatory approval processes involved in bringing their patented products to market.

Issues relating to PTEs in Australia continue to be addressed at an unprecedented level by Australian courts. The latest decision to address such issues is that of the High Court of Australia in H. Lundbeck A/s V Sandoz Private Limited [2022] HCA 4 (Lundbeck). Lundbeck is Australia’s longest running related PTE litigation, concerning Lundbeck’s patent for the antidepressant escitalopram, sold under the brand names “Lexapro” and “Cipramil”.

The High Court held that an exclusive licensee cannot bring infringement proceedings for conduct that occurred during the extended term of a patent in circumstances where the PTE is granted after the original term of the patent has already expired. The High Court held that only the patentee has the right to bring infringement proceedings in such circumstances. Additionally, Lundbeck reminds all parties to patent litigation just how important precision of language in the drafting of settlement agreements can be.

Background

H Lundbeck A/S (Lundbeck Denmark) is the owner of the relevant patent. Lundbeck Australia Pty Ltd (Lundbeck Australia) is an Australian subsidiary of Lundbeck Denmark and the exclusive licensee of the patent. CNS Pharma Pty Ltd (CNS), a subsidiary of Lundbeck Australia, sells a generic version of Lexapro in Australia, which is also manufactured by, and purchased from, Lundbeck Denmark.

The patent was dated 13 June 1989 and, therefore, the standard patent term expired on 13 June 2009. However, on 25 June 2014, Lundbeck Denmark was granted a retrospective extension to the patent term, providing a new expiration date of 9 December 2012.

During the period from 15 June 2009 to 9 December 2012 (a period falling within the extended patent term), Sandoz Pty Ltd (Sandoz) sold generic escitalopram products. Following the granting of the PTE, Lundbeck Denmark and Lundbeck Australia instituted proceedings against Sandoz for patent infringement. The proceedings also involved claims that Sandoz had engaged in misleading and deceptive conduct through its failure to warn its customers and prospective customers that the supply of generic escitalopram products may infringe the patent, if a PTE was to be granted. Notably, the PTE had not been granted at the time of Sandoz’ conduct, but Sandoz was aware that a PTE was a possibility.

In the judgment at first instance, the Federal Court held that Sandoz’ sales during the PTE period constituted both patent infringement and misleading and deceptive conduct. On appeal, the Full Federal Court overturned the primary judge’s findings, and alternatively held that Sandoz had a complete defence on the basis that Sandoz held a non-exclusive licence from Lundbeck Australia.

Prior to the grant of the PTE, to resolve earlier proceedings, Sandoz, Lundbeck Australia and Lundbeck Denmark had entered into a settlement agreement that granted Sandoz a non-exclusive licence to exploit the escitalopram product prior to the patent expiring (Settlement Agreement). This Settlement Agreement was subject to extensive analysis in the High Court’s judgment.

Decision

Settlement Agreement

Clause 3(1) of the Settlement Agreement granted Sandoz an irrevocable, non-exclusive licence to the patent effective from:

(a) 31 May 2009 if the Patent expires on 13 June 2009;

(b) 26 November 2012 if the Patent expires on 9 December 2012;

(c) 31 May 2014 if the Patent expires on 13 June 2014; or

(d) 2 weeks prior to the expiry of the Patent if the Patent expires on a date other than a date described in clause 3(a) to (c).

Moreover, the Settlement Agreement granted Sandoz a further irrevocable, non-exclusive licence to the patent to manufacture, import, market and offer to sell (but not to sell or supply) pharmaceutical products containing escitalopram “effective from the beginning of the calendar month in which the licence granted under clause 3(1) becomes effective.

The dates listed in sub-clauses 3(1)(a) to (d) were reflective of the different scenarios that may have arisen as a result of the application then before the Court with respect to the PTE (the patent would expire on: 13 June 2009 if there were no PTE; 9 December 2012 if there was a PTE based on the inclusion of Cipramil on the ARTG; and 13 June 2014 if there was a PTE based on the inclusion of Lexapro on the ARTG).

The High Court was tasked with construing this clause in circumstances where the original term of the patent expired on 13 June 2009, and was subsequently retrospectively extended so as to have an expiration date of 9 December 2012.

The parties mutually agreed that the patent expired on 13 June 2009, irrespective of the later PTE. Therefore, sub-clause (1)(a), not (1)(b), was triggered. Consequently, the licence to Sandoz was effective from 31 May 2009. However, the parties disagreed on the term of the licence. The patentee contended that the licence terminated at the expiration of the patent, being 13 June 2009. In contrast, Sandoz argued that the licence was for a term commencing on 31 May 2009 and had no fixed end date.

The majority of the High Court considered the parties’ commercial motivations when construing the relevant clause, as well as aiming to give temporal effect to the terms in the licence clause, finding that the commercial result intended by the parties was that Sandoz be granted a licence to sell generic pharmaceutical products containing escitalopram during the final two weeks of the term of the patent. During that period, other suppliers of generic pharmaceutical products would still be excluded from selling escitalopram products due to the continuing operation of the patent. Sandoz was therefore being granted entry into the market two weeks earlier than its competitors. The High Court also concluded that the Settlement Agreement did not give consideration to the question of whether action could be brought against Sandoz in the circumstances which arose, being that the PTE was granted after the expiry of the initial term.

Limitation on Right of Exclusive Licensee to bring Proceedings for Infringement

The High Court considered whether Lundbeck Australia, as the exclusive licensee, had standing to bring proceedings for patent infringement against Sandoz.

Section 79 of the Patents Act 1990 (Cth) applies to circumstances in which the PTE is granted after the expiration of the relevant patent. The section grants the patentee the right to commence proceedings in relation to acts occurring during the PTE period in circumstances where a PTE is granted after the expiration of the initial term. It is silent on the rights of an exclusive licensee.

In considering this issue, the High Court noted that it was not apparent from the available legislative material why exclusive licensees were not included in the section, and commented that this may have been an oversight. However, the High Court found that it would not be appropriate to disregard the legislature’s clear and unambiguous wording and, consequently, agreed with the Full Court that while Lundbeck Denmark, as patentee, had rights to bring proceedings against Sandoz, Lundbeck Australia, as exclusive licensee, did not.

Misleading and Deceptive Conduct

The High Court also addressed the claim that Sandoz had engaged in misleading and deceptive conduct by failing to warn its customers (e.g. pharmacists) that the supply of generic escitalopram products may infringe the patent should the PTE be granted.

In considering this claim, the majority of the High Court identified two key principles that apply to a misleading and deceptive conduct argument:

  • where the alleged misleading and deceptive conduct is not said to be directed to identified individuals, the Court must "isolate by some criterion" a representative member of the class of persons to whom the conduct is directed; and
  • where the misleading or deceptive character of the conduct is said to lay in the non-disclosure of some circumstance, it must be established that the representative member of the class to whom the conduct is directed would hold a reasonable expectation that the circumstances be disclosed.

The High Court found in favour of Sandoz, reasoning that there was no evidence pharmacists would have held the expectation that they be informed about the possibility of proceedings arising with respect to patent infringement.

Implications

The High Court’s decision that exclusive licensees do not have standing to sue for infringement that occurred during the PTE period in circumstances where a patent has been retrospectively extended has clear implications for multinational pharmaceutical companies, where arrangements are often structured so that the patent is held by a foreign company, with an exclusive licence granted to a local subsidiary.

Additionally, although the issues considered by the High Court when interpreting the Settlement Agreement were case specific, it serves as an important reminder of how vital precision of language in the drafting of settlement agreements can be.