The Federal Court has held that a patent licensee will only have standing to bring infringement proceedings under the “exclusive licensee” provisions of the Patents Act 1990 (Cth), if that licensee has been granted all of the rights of the patent holder to exploit the patent, including the right to manufacture the product which is the subject of the patent.
In the recent case of Bristol-Myers Squibb Company v Apotex Pty Ltd (No 5), Justice Yates held that if any residual rights are reserved for the patent holder (or any other person) the licence will not be “exclusive” and the licensee will not have standing to sue for infringement.
As a result, careful contractual drafting is required if it is intended that a licensee should have the right to enforce a patent in its own name.
RIGHT OF EXCLUSIVE LICENSEE TO SUE FOR INFRINGEMENT
Under the Patents Act, the only persons who are entitled to commence patent infringement proceedings are the patent holder and its exclusive licensee. Accordingly, whether or not a licence is considered to be “exclusive” has significant implications for both the patent holder and the licensee.
Prior to the decision in Bristol-Myers Squibb Company v Apotex Pty Ltd (No 5), there was some uncertainty as to what rights a licensee must be granted before it will be considered an “exclusive licensee” under the Patents Act.
Earlier cases suggested that a licence could be considered exclusive if it conferred on the licensee (and no one else) some (but not necessarily all) of the rights of the patent holder to “exploit” the patent in the patent area. This line of reasoning was rejected by Justice Yates in Bristol-Myers Squibb Company v Apotex Pty Ltd (No 5).
BACKGROUND TO THE CASE
Otsuka Pharmaceutical Co Ltd (Otsuka) held an Australian patent for the product (and process for preparing) an improved form of aripipazole, a drug used in the treatment of schizophrenia.
In 2001, Otsuka entered into an agreement with Bristol-Myers Squibb (BMS) under which BMS was granted the exclusive right to advertise, market, promote, distribute and sell aripipazole in every country in the world except the United States and the European Union.
Under the terms of the licence, Otsuka reserved for itself the exclusive, worldwide right to manufacture aripipazole.
In 2009, BMS claimed that Apotex Pty Ltd (Apotex) had infringed or threatened to infringe Otsuka’s patent by offering to sell various pharmaceutical products in Australia which contained aripipazole as the active ingredient. BMS commenced proceedings against Apotex, relying on its rights as the exclusive licensee of the patent.
Apotex claimed that, because BMS did not have the right to manufacture aripipazole, BMS was not an “exclusive licensee” under the Patents Act and accordingly did not have standing to bring the proceedings.
Justice Yates agreed with the reasoning put forward by Apotex, finding that, because the licence granted to BMS excluded the right to manufacture aripipazole, BMS could not be an exclusive licensee with standing to sue Apotex for infringement.
His Honour found that, for a licence to be exclusive, the legal effect of the licence must be that the patent holder (and all other persons) are excluded from the exploiting the patent by any means in the patent area.
His Honour stated that, “An 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. It follows that there can only be one exclusive licensee.” 
CONSEQUENCES FOR BMS
Ultimately, by joining the patentee (Otsuka) to the proceedings, BMS was able to restrain Apotex from selling certain products containing the patented form of aripipazole in Australia.
However, the fact that BMS did not have standing to sue Apotex for infringement meant that BMS was unable to recover any of its costs in relation to the infringement proceedings from Apotex. In a subsequent decision on costs, Justice Yates held that, “it would be incongruous to award BMS all its costs of the proceeding when, in my view, it had no entitlement to commence or to prosecute its claims for infringement.” 
BMS has appealed Justice Yate’s findings on standing and costs to the Full Federal Court.
WHAT RIGHTS MUST AN EXCLUSIVE LICENSEE HAVE?
Following the reasoning of Justice Yates, in order for a licence to be exclusive, a licensee must be granted all of the rights of the patent holder to “exploit” the patent in the patent area. The term “exploit” has a specific meaning under the Patents Act.
In order to have all of the rights to “exploit” the patent, a licensee must be granted the exclusive rights:
- if the patented invention is a product, to make, hire, sell (or otherwise dispose of) the product, offer to make, sell, hire (or otherwise dispose of) it, use and import it and keep it for the purpose of doing any of those things; or
- if the patented invention is a method or process, to use the method or process or do all of above things in respect of a product resulting from such use.
Essentially, the licensee must step into the shoes of the patent holder with respect to the rights granted by the patent.
In light of this decision (which is subject to appeal):
- Patent licences under which it is intended that a licensee should have the right to enforce a patent in its own name should be carefully drafted. The Licensee must be granted all of the rights to “exploit” the patent (including the right to import and manufacture the product) if it is to have standing to take action for patent infringement as an exclusive licensee.
- Even if a licence is not “exclusive” in accordance with the meaning given to this term in this decision, the parties can contractually agree on an approach to commencing patent infringement proceedings. For example, a licensee may be granted the right to commence infringement proceedings in the patentee’s name, as its agent. However, the patentee may be reluctant to agree to an agency approach or may wish to impose tight controls on the licensee’s appointment as its agent. In addition, if the licensee commences action as agent for the patentee and does not have standing to commence action in its own name, it cannot recover damages for the losses that it has suffered as a result of the infringement (it will only be able to recover the losses suffered by the patentee, which will likely be considerably less than the losses suffered by the licensee).
- Describing a licence as “exclusive” does not mean that the licensee will necessarily have standing to sue for patent infringement.
- This decision suggests that multiple “exclusive licensees” cannot exist in the patent area (for example, in relation to different fields of application of the licensed invention). Careful consideration should be given to who will commence and control patent infringement litigation in situations where the patentee has more than one licensee in the patent area.
- Licensees under an existing licence which does not exclusively confer all of the rights to exploit the patent may wish to consider whether a variation to the licence may need to be agreed with the licensor, if the expectation was that the licensee would be an “exclusive licensee” under the Patents Act.
- It is open to patentees who have granted an exclusive licence to contractually restrict the licensee from bringing infringement proceedings in its own name. For example, it may be expressly stated in the licence that only the patentee has the right to take any action (including commencing patent infringement proceedings) in relation to the patent in the patent area. It could also be stated in the licence that the licensee has no right to exercise the rights granted to an exclusive licensee under the Patents Act.
We await the hearing of the appeal in this matter and will report in due course on the outcome of the appeal.