H. Lundbeck A/S & Anor v Sandoz Pty Ltd; CNS Pharma Pty Ltd v Sandoz Pty Ltd

[2021] HCATrans 156

[2021] HCATrans 156

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S22 of 2021

B e t w e e n -

H. LUNDBECK A/S

First Appellant

LUNDBECK AUSTRALIA PTY LTD

Second Appellant

and

SANDOZ PTY LTD

Respondent

Office of the Registry
  Sydney  No S23 of 2021

B e t w e e n -

CNS PHARMA PTY LTD

Appellant

and

SANDOZ PTY LTD

Respondent

KIEFEL CJ
GAGELER J
EDELMAN J
STEWARD J
GLEESON J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA BY VIDEO CONNECTION TO BRISBANE, SYDNEY AND MELBOURNE

ON FRIDAY, 8 OCTOBER 2021, AT 9.45 AM

Copyright in the High Court of Australia

____________________

KIEFEL CJ:   In accordance with the protocol for remote hearings, I will announce the appearances for the parties.

MR A.J.L. BANNON, SC appears with MR L. MERRICK and MS C.I. CUNLIFFE for the appellants.  (instructed by Corrs Chambers Westgarth)

MR C. DIMITRIADIS, SC appears with MR A.R. LANG, SC for the respondent.  (instructed by Clayton Utz)

KIEFEL CJ:   Yes, Mr Bannon.

MR BANNON:   Thank you, your Honour.  The issue which arises in relation to the settlement agreement is whether, as a matter of construction, it operates to confer a royalty‑free licence to the patent in suit as extended, in circumstances where the extension was granted after the expiry of the original term for the patent of 20 years on 13 June 2009 and in circumstances where the section which retrospectively grants rights to the patentee as a result of the post‑expiry extension – namely, section 79 – is predicated on the expiry of the original term.

Before going to the settlement agreement, may I take the Court to the legislative context in which the settlement agreement was made, which formed part of the genesis of the transaction, and the background.  It also assists in explaining what happened and the reasoning of both the primary judge and the Full Court.

If I can firstly start by reference to section 79, which in the joint bundle of authorities at page 85, and that section provides that:

If:

(a)a patentee applies for an extension of the term of a standard patent –

and this patent is such a patent:

(b)the term of the patent expires before the application is determined –

and that is what occurred here, and:

(c)      the extension is granted –

and that is what occurred here:

the patentee has, after the extension is granted, the same rights to start proceedings in respect of the doing of an act during the period:

(d)      commencing on the expiration of the term of the patent –

in this case 13 June 2009, and:

(e)      ending on the day on which the extension was granted;

as if the extension had been granted at the time when the act was done.

That is another issue which ‑ whether those rights can inure to an exclusive licensee which I will come to, but for present purposes the extension provision relevantly is section 70 at page 80 of the book.  Subsection (1) provides that a patentee:

may apply to the Commissioner for an extension –

Each of the requirements in subsections (2), (3) and (4) must be satisfied.  Relevantly for our purposes is (2)(a), mainly:

one or more pharmaceutical substances per se must in substance be disclosed in the complete specification of the patent and in substance fall within the scope of the claim ‑

The relevant pharmaceutical substance for the purposes of this case is a substance which became known as escitalopram, which is the S‑enantiomer, the racemic compound which became known as citalopram.  Then paragraph (3):

Both of the following conditions must be satisfied in relation to –

at least one of those substances:

(a)       goods containing, or consisting of –

and those words attracted significant intention in various aspects of this overall litigation:

the substance must be included in the Australian Register of Therapeutic Goods;

To be supplied as a therapeutic good, a pharmaceutical substance must achieve that registration.  To achieve that registration, one must satisfy effectively a committee appointed by the Department of Health of efficacy, safety and stability in the sense that when the product, once supplied, will not deteriorate on pharmacy shelves, for example.  So that process can take some time.  Then (b):

(b)       the period beginning on the date of the patent –

which is the filing date, in this case 13 June 1989:

and ending on the first regulatory approval date for the substance must be at least 5 years.

Paragraph (5) tells us what the first regulatory approval date is, and relevantly it is paragraph (a), if there was:

no pre‑TGA marketing approval –

and you can get pre‑TGA marketing approval, for example, it is required if you are going to do experiments on persons or clinical trials on persons in Australia, and that was not the case here.  It says:

the date of commencement of the first inclusion in the Australian Register of Therapeutic Goods of goods that contain, or consist of –

Again, in the same words.  And going back to (3)(b), five years have to pass.  In other words, earlier extension provisions had wide discretions as to the benefit of various patents and how long it took and whether the parties acted reasonably.  These sections introduced a regime that would limit the particular pharmaceutical substances with particular matters to be prescribed and in effect said, if it took you five years, then you have qualified.  In other words, it made it a much more administrative exercise.

Section 65 ‑ and perhaps I should just add here, foreshadowing, that the registration which triggered the ultimate extension, that is, for the purposes of (3)(a), which is a registration of the substance citalopram, which became known as Cipramil – that was its trade name – that ultimately formed the basis of the extension.  And that was after an attempt by Lundbeck to rely on a later registration for escitalopram, trade name Lexapro, and part of the litigation was whether or not the first time Lexapro, that is, escitalopram, was contained in a registration was in fact Cipramil, which was the racemic compound.

Lundbeck maintained for many years, ultimately unsuccessfully, the first relevant registration was of the separated enantiomer, namely escitalopram.  That failed, and as we will see, and as reported, they went back and then relied on Cipramil, but needed to seek substantial extension of time. 

Then going back to section 65, “The date of a patent is”, it tells us on page 77, “the date of filing”.  The term of the patent is 20 years from the date of filing and hence the expiry date relevantly was 13 June 2009, 20 years after filing on 13 June 1989.

An important provision which informs much of this litigation and indeed the debates in relation to the settlement agreement is section 71, which is the provision as to when an application must be filed.  Over on page 82, section 71(2) tells us that:

An application for an extension of the term of a standard patent must be made during the term of the patent –

So here it had to be made prior to the expiry of the original term, which was 13 June 20009:

and within 6 months after the latest of the following dates:

(a)the date the patent was granted –

that is not a material date, then:

(b)the date of commencement of the first inclusion . . . of goods that contain, or consist of, any of the pharmaceutical substances ‑

Then the last date was:

(c)      the date of commencement of this section.

Which was 26 January 1999.  Just to put the Court in the picture, as it appears from the judgment, the date of first inclusion in ARTG of Cipramil was 9 December 1997, which was before the commencement of the section on 26 January 1999.  So if the application had to be based on Cipramil, that means it had to be filed by 26 July 1999.  The application which was ultimately filed was not filed until 12 June 2009, so a long time out of date. 

On the other hand, if an application was based on Lexapro, which was a registration which was lodged on 16 September 2003, the application for extension had to be filed by 16 March 2004 and in fact it was filed on that basis, well within time on 22 September 2003.  Then, if an extension – and then running through some of the other provisions briefly, section 72, if “an application for extension” is made it gets notified.  So, anybody with an interest becomes aware of it.  Section 74 provides, on page 83, that:

The Commissioner must refuse to accept the application if the Commissioner is not satisfied, on the balance of probabilities, that the requirements of sections 70 and 71 are satisfied - 

So, 71 is timing and 70 would ordinarily be – they are fairly mechanical issues but turned out this case was not mainly – whether or not it is for a pharmaceutical substance per se and, secondly, what was the registration which first contained that substance.  Then, subsection (2):

If the Commissioner accepts the application -

it notifies acceptance and, relevantly, that invites others to – looking at section 75 – “oppose” the extension, which would include the Minister and the grounds of opposition simply are that either:

70 and 71 are not satisfied –

So, there is no wider discretion.  Over the page (3) and (4), there is an:

opportunity to be heard –

Section 76, must be granted if:

there is no opposition to the grant; or

we would say, it otherwise satisfies the requirements.  Then section 77 provides:

If the Commissioner grants an extension of the term -

then the term is dictated by a formula, which is:

(a)the period beginning on the date of the patent and ending on the earliest first regulatory approval date –

the relevant one, reduced by five years with a maximum extension of five years.  Now, these dates inform the paragraphs which appear in the settlement agreement, so that if the extension had to be based on Cipramil – that was first registered on 9 December 1997 – the period beginning on the date of the patent up until that date is approximately eight and a half years less five years is approximately three and a half years, and that dictated an extension to 9 December 2012, which was ultimately the extension which was granted. 

On the other hand, if Lexapro was the relevant registration, that was registered on 16 September 2003, which is approximately 13 and a half years after the date of the patent – sorry, 13 - I have been saying 30 sometimes, I mean 13 – 13 June 1989.  That is about 13 and a half years, less five is eight and a half years, but you can only get a maximum of five – subsection (2) – so that would make the extension 13 June 2014 and one sees that date in the agreement as well.  Section 78 is one of the checks and balances in relation to this more administrative process of extension and that provides:

If the Commissioner grants –

and this informs one of the…..in relation to the – how you apply section 79 to exclusive licensees.  Section 78 provides:

If the Commissioner grants an extension of the term of a standard patent, the exclusive rights of the patentee during the term of the extension are not infringed:

(a)by a person –

leaving out – going to the word “exploiting” - by a person exploiting, right at the bottom, effectively the substance for a non‑therapeutic use – so, in other words, it is just so that the whole patent term gets extended – but you do not infringe if you do not use anything in the patent for a purpose other than the reason it got extended, in effect.  Then:

(b)by a person exploiting any form of the invention other than -

(i), relevantly, the substance per se, so that is another protection.  You only get these extensions if you produce effectively a new substance, not a combination of things – a new substance per se.

The reason I just refer to this now is because that is a check which applies both to extensions granted before and after the expiry of the patent.  It only refers to a check on the rights of the patentee, but logically that flows through to the exclusive licensee.  You do not need to say anything about the exclusive licensee because all exclusive licence rights are derived from the patentee.

I have referred to section 79.  The last section I need to refer to for this purpose relevantly is the extension of time provisions, which is section 223, which starts at page 207, and relevantly subsection (2):

Where, because of:

(a)an error or omission by the person concerned –

here, relevantly, it was Lundbeck:

a relevant act that is required to be done within a certain time is not, or cannot be, done, the Commissioner may . . . extend the time for doing the act.

As I said, on 12 June 2009, one day before the expiry of the patent, Lundbeck lodged an application based on Cipramil, which should have been lodged on 21 July 1999, and it claimed that it did so by an error or omission and, secondly, that that was something which the Commissioner could extend.  The Commissioner agreed that it applied and ultimately granted the extension and that was the issue which went to this Court.  In our notice of outline we have given a reference to that decision that I need to go to, but it sets out some……I went through.

So, it is against that legislative background that one comes to the provisions of the agreement and if I could do this – if I could perhaps identify the provisions firstly.  I will come back after referring to what we say are relevant background matters to address more specifically the arguments.

But the agreement itself can be found in two places – and I was going to refer to where it appears sufficiently in the primary judge’s reasons at paragraph 251.  I think, as far as we are concerned, all relevant provisions appear there.  In the appellants’ book of further materials, page 15, is the full agreement, if need be.  But, if it is convenient to the Court, I will refer to the parts at the primary judge’s reasons at paragraph 251.  I will be using the Lundbeck appeal book – so, paragraph 251 appears in the Lundbeck appeal book at page 93.

I am terribly sorry, your Honours, I did also omit to mention in section 223 there is another provision which is relevant, which is subsection (9) which appears at 209 which provides that:

Where the Commissioner grants:

(a)       an extension of more than 3 months –

which was the case here, it says:

the prescribed provisions have effect for the protection or compensation of persons who, before the day on which the application for extension of time is advertised –

and 223 provides for advertising of an application:

exploited (or took definite steps by way of contract or otherwise to exploit) the invention concerned because of the failure to do the relevant act within –

the relevant time, et cetera.  There is a regulation which permits a person claiming to be affected by that to ask for a licence and I think, as your Honours have been advised, on foot during the proceedings before the primary judge and, indeed, the Full Court, was an application by Lundbeck for such a licence. 

After the Full Court judgment the Registrar – or the Commissioner, I should say – granted a licence.  That is the subject of a rehearing application before the Administrative Appeals Tribunal.  It is a de novo hearing.  That has been stayed pending the determination of these proceedings.  I think our learned friends refer to the existence of that as a matter just to be adverted to that, if we are successful, we all agreed it needs to go back to the trial judge and leave it to the trial judge to how she, or perhaps any judge at first instance, may deal with that. 

The point of that is to say two things.  One, that is one of the relevant statutory provisions by way of background.  But secondly, if we are successful, then that – there are couple of issues in relation to it which I do not need to go into in much detail.  We say it is an ill‑founded application both in fact of law, as one would expect our learned friends furiously disagree, but we also say there may be an issue as to whether or not they can rely on that now after the judgment in this case.  But they are all issues not for this Court if we get to that if we are successful here.  But the fact that they had the ability under an extension of time application to seek some relief was a fact which existed objectively before the settlement agreement was entered into in February 2007.

So after that addition could I then go back to the terms of the settlement agreement which appear at page 93 of the Lundbeck appeal book at paragraph 251.  The recitals identify Lundbeck Australia as “the exclusive licensee of the Patent”.  Paragraph (c) refers to Sandoz commencing a proceeding.  Paragraph (d), no concessions.  The patent is identified as the relevant patent.  The proceeding is identified as a proceeding:

commenced by Sandoz . . . against Lundbeck Denmark seeking revocation of the Patent.

As we will see, they did two things in that proceeding.  They sought to revoke the patent and they sought to revoke, along with two other generics, what at that stage had been the Commissioner’s decision to allow an extension of time based on the Lexapro registration, initially out to June 2014 and then subsequently the Commissioner had changed it to 9 December 2012, but each of the generics were saying that one or other of those decisions should not be permitted – should be set aside, I should say.  But the proceeding, relevantly, did not include any proceedings for infringement against Sandoz.

Paragraph 1 provides various “Release by, and obligations of Sandoz”.  Clause 2 provides for release of obligations of Lundbeck.  I think relevantly (b) provides:

release Sandoz from all claims, actions and causes of actions . . . present and future, relating to the Proceeding -

Before trial, but not pursued on appeal, our learned friends argued that that was a release of any claim for infringement under the patent at any time. Her Honour rejected that, and that argument was not pursued on appeal.  Her Honour rejected it because the only proceeding referred to there was a proceeding by Sandoz to revoke the patent or to challenge the particular extensions based on the Lexapro registration and, in effect, her Honour found there was no intent to release Sandoz from any claim for infringement at any time in the future in relation to the patent.

Equally, it is to be observed, as her Honour observed, that the agreement did not preclude Lundbeck from making a fresh application based on an extension of time, based on the Cipramil registration.  Conversely, if one goes back to clause 1, there was nothing in clause 1 which precluded Sandoz from opposing that extension of time or opposing the extension and as we will see, they did that.  They joined with every generic in seeking to oppose the extension of time at every level.  Then they opposed the extension of term at every level.

It is noteworthy to note this.  If in truth they, amongst all the generics, were the only ones with a royalty‑free licence for that extended term, they stood in a position of extreme commercial advantage compared to their rivals because they were free, without royalty for three and a half years, to do acts within the patent and their rivals were not and either they may not at risk of infringement or, if they did, they would bear the cost of infringement.  So that a person who had that licence ‑ ‑ ‑

EDELMAN J:   That is not quite right, is it, Mr Bannon?  If you assess it at the time of the contract, then at the time of the contract they might have had some very slight commercial or possibility of a commercial advantage for the extended term.

MR BANNON:   Yes.  What I am talking about, your Honour, totally is post-contract and it does not inform construction.  I totally accept that, but it rather informs that the argument which is now propounded is somewhat adventitious because, if they had thought of that argument there, they would have been supporting the extension because it served their interests at that date.  But the fact that it is an afterthought and an adventitious argument does not mean it is not something which is not worthy of consideration and obviously we have three judges who upheld it.

But relevantly, there was no inhibition at the time of the agreement on Lundbeck seeking a further application for extension of time and relevantly no inhibition on Sandoz of opposing it.  So, in short – and this was advancing to a point which we put in our outline and our submissions, namely that this is consistent with this agreement being designed to deal with what was anticipated to arise out of the proceedings. 

It was not designed to deal with what happened and the parties made no attempt to contractually regulate their rights in relation to a post‑expiry extension but, rather, each was left to their rights to pursue them freely, and each was left to assess – and thinking logically as a reasonable person at the time of the agreement, no doubt each party assessed the likelihood of that happening.

From Sandoz’s point of view no doubt they thought it was a low risk and they were prepared to take that risk, if they had thought about it as a reasonable person.  From Lundbeck’s point of view…..there is no way they were going to deprive themselves of that opportunity and let one party in royalty free for the whole of that period.  Understood as leaving each party to their mutual positions unimpeded by the contract makes sense; the outcome of the Federal Court we will ultimately say does not.  Then clause 3 on page 94 provides that:

Lundbeck Denmark and Lundbeck Australia jointly and severally grant Sandoz an irrevocable non‑exclusive licence to the Patent effective from:

(a)31 May 2090 if the Patent expires on 13 June 2009 -

31 May is obviously 14 days – two weeks before 13 June 2009 which is the expiry date of the original term:

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

and that would be an expiry date which is based on Cipramil, which was an extension which at the time of the proceedings before Justice Lindgren and on appeal from Justice Lindgren was still in the ring, even though no application had been based on Cipramil, the Commissioner taking the view that in effect a Cipramil‑type extension could be based on the later Lexapro, a matter which ultimately Justice Lindgren rejected, as did the Full Court, and special leave in that decision was also rejected.  Then the third date:

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

That would be true if Lundbeck was successful in persuading Justice Lindgren and then the Full Court that the first time escitalopram was the subject of an ARTG registration was the Lexapro registration because that was the registration of a single enantiomer, not a racemate, which included both enantiomers.  But again that is a two‑week period:

(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).

So therefore the two‑week periods appear at each level.  Her Honour found that reference to the patent did not include the patent as it may be extended later, and I will come back to that, so we support that construction.  Reasonable persons in the position of the parties would have understood the patent to be referred to as the patent as it stood immediately before one or other of those relevant expiry dates.  Then subsection (2) provides that:

In addition to the licence granted under clause 3(1), Lundbeck Denmark and Lundbeck Australia jointly and severally grant Sandoz an irrevocable non‑exclusive licence to the Patent, effective from the beginning of the calendar month in which the licence granted under clause 3(1) becomes effective -

So that enabled them not to sell, but effectively get ready to sell, to stockpile.  Then over the page, paragraph 5, there was a provision for discontinuance of the proceedings, and that was the quid pro quo that Sandoz agree to discontinue their participation in the proceedings.  Then 7(a) is an “entire agreement” clause, and 7(c) is a voluntary “legal advice” clause. 

Can I then return to our outline.  The matters that I have addressed really are paragraphs 2 and 3.  Then we say, under the next italicised heading, these are matters which fit within what this Court said on numerous occasions, but Electricity Generation v Woodside is a convenient reference, namely, matters to be taken into account are the commercial purpose, objects, genesis, background, context and market - market is important, namely the nature of the market in which they were participating. 

Paragraph 5 of the outline we refer to the Patent expiring on 13 June, of giving Lundbeck the exclusive right to exploit escitalopram.  But if I could take your Honours to the primary judgment, paragraph 47, which gives a bit more teeth to the notion of enantiomers and racemic compounds ‑ ‑ ‑ 

EDELMAN J:   Mr Bannon, I do not want to take you out of turn, you may be coming to this, but are you going to deal at some point with the meaning of the words “to the Patent”? 

MR BANNON:   Yes, and what we say – what her Honour said – the patent is the patent as it stood immediately before the relevant expiry date.

EDELMAN J:   No, I appreciate that, but my question ‑ ‑ ‑ 

MR BANNON:   I am sorry, your Honour ‑ ‑ ‑ 

EDELMAN J:   ‑ ‑ ‑ is really directed to where you find the expiry date in clause 3, and whether you find that in the words “to the Patent”. 

MR BANNON:   Yes, “to the Patent”.

GLEESON J:   Mr Bannon, I also have a question about the meaning of the word “irrevocable”.  One definition of that is “cannot be terminated for any reason”.  Is that the definition that you adopt?

MR BANNON:   Yes.

GLEESON J:   Thank you.

MR BANNON:   As the primary judge said, that is just irrevocable for the period of the licence, which the period of licence her Honour found was effectively two weeks.

EDELMAN J:   Could you just explain to me why the words “to the Patent” necessarily require that the licence expires when the patent terminates?

MR BANNON:   Because the…..dates of two weeks before – I am sorry, your Honour – why the licence expires?

EDELMAN J:   Well, all of the dates, (a), (b) and (c) are dates of the commencement of the licence.  There is no expiry date for the licence.  Provisions such as section 145 of the Patents Act assume that you can have a licence that can go on, perhaps for many, many years after the patent has expired.  So where is the expiry date in clause 3?

MR BANNON:   The expiry date is ‑ ‑ ‑

EDELMAN J:   Of the licence?

MR BANNON:   Yes, I understand.  The expiry date is – sorry, I am getting my own feedback.  I am not sure your Honour is hearing me.  I will try again.  Are your Honours hearing feedback?  I am getting my own feedback which is ‑ ‑ ‑

KIEFEL CJ:   It seems to have stopped now, Mr Bannon, but if it happens again, we might have a brief adjournment and allow it to be corrected.  It seems all right.

MR BANNON:   Thank you.  Can I answer that in two stages.  Firstly, if one goes to section 145, which I did not go to, at page 154 of the book of authorities, it deals with:

A contract relating to the lease of, or a licence to exploit, a patented invention -

So that is not a licence of a patent.  That is a licence to the patented invention and there is very important difference because, as your Honour points out, a licence for the patented invention in this case would be a licence to escitalopram, which would not be dictated by the term of the patent.  That is why 145 has work to do.  If, for example, you, on a commercial basis, had entered into a licence for escitalopram, that licence would continue notwithstanding - at a time when it was subject of a patent, that licence would continue notwithstanding the termination of the patent.  The Act was designed to protect against that by giving somebody the opportunity to get out of it, in effect.

Of course, that need might arise for a number of reasons.  For example, the patent may cease because somebody revokes it but nevertheless you are subject to a commercial agreement.  You can seek to revoke it if you are subject to the commercial agreement or the patentee may have failed to pay a licence fee and the patent ceases.

With respect, 145 has nothing to do with this type of licence because this type of licence, as her Honour found, was not a licence to the invention.  It was a licence to the patent.  That is the first step in the argument.  Secondly ‑ ‑ ‑

GLEESON J:   I am sorry, Mr Bannon, I do not understand that.  What is the difference between a licence to exploit a patent and a licence to a patent?

MR BANNON:   It is a licence to exploit a patented invention, your Honour.

GLEESON J:   Yes.

MR BANNON:   So a party has a right to ask for and be granted a patent.  A patent affords the owner of the patent the exclusive right to exploit the patented invention the subjective of a patent, but in order to get a patent, you must persuade the Commissioner of Patents, and ultimately a court if need be, that you have something which qualifies as an invention. 

An invention consists of a manner of manufacture or has to be a manner of manufacture.  So it could be a product; it could be a method.  The patent which is granted, which is a patent for the invention, with or without a patent – perhaps I should take your Honour back to section 13 to assist in that.

EDELMAN J:   Just before you do, do you say that the expression “licence to the Patent” in clause 3 gives the licensee, Lundbeck, anything more than a freedom to exploit the invention and, if so, what more does it give?

MR BANNON:   It gives freedom to exploit the invention, I accept that, your Honour.  It is a freedom from being excluded from the right to exploit the invention.

EDELMAN J:   How is that different from a licence to exploit the invention?

MR BANNON:   Because a licence to exploit the invention is not dependent upon the existence of a patent. 

STEWARD J:   Mr Bannon, might it be one way of reading this agreement is the licence to the patent gives Sandoz immunity from infringement for the period while the patent exists?

MR BANNON:   Correct, yes.

STEWARD J:   As a generic manufacturer?

MR BANNON:   Yes. 

STEWARD J:   All right.

MR BANNON:   But the difference between the concept of an invention and a patent is absolutely critical.  In other words, Edison can have invented many things, but never applied for a patent.  That did not mean he still did not have an invention.  The only reason he could get a patent is because he had an invention.  The cases that get fought about are whether things are an invention and that is whether the invention, which can be a product, gives rise to something which qualifies for the grant of a patent which is a statutory exclusive right to prevent anybody else dealing with the invention. 

Without a patent, there are many inventions which occur which do not get patented because people prefer to keep them as the subject of confidential information.  If somebody else comes up with the same idea, they are free to use it as long as they did not use information which the original inventor had.  But with a patent, the patent prevents anybody, even if they come up with it themselves, from using the same invention even if they never look at it.

GLEESON J:   Mr Bannon, would you agree then that the licence to the patent is the freedom to exploit the patented invention?

MR BANNON:   Yes.  But a licence to the patented invention is not a licence to the patent.  They may be coincident, and that is why section 145 has work to do.

EDELMAN J:   Well, that may be the very question.

MR BANNON:   That is a critical aspect of patent law, the potential for a patent to exist independently of an invention, and I accept that that is something which must be grasped.  In any event, that was a partial response to what your Honour indicated.

EDELMAN J:   I do not think there is any dispute that the patent is different from the invention that it grants exclusive rights in relation to, but the difficulty that I am having is the way that you read the words “to the Patent” as somehow meaning that the rights or the freedom to exploit must therefore be confined to the term of the patent.  I am not sure why that limitation is confined in the words “to the Patent”, but you may be intending to address that later.

MR BANNON:   I will come back to it, your Honour.

STEWARD J:   Can I ask this question, Mr Bannon?  What would be the commercial value of having an ongoing licence if the patent has expired and you are free to manufacture the drug as a generic manufacturer?

MR BANNON:   The commercial value lies in being able to do something which no one else can do, while the patent is on foot.

STEWARD J:   Although section 145 contemplates that that is not necessarily an uncommon occurrence.

MR BANNON:   But that may be for a whole host of different reasons though.  It can be quite a common occurrence because a patentee may exploit – seek to exploit the patented invention in knowledge that the patentee has a patent of exclusive rights – and undertaken a negotiation with the party during the course of the patent and say we will let you use this invention and we may also provide additional things – for money, of course – for reward – and additional benefits may be know‑how, updates on our own technology – in other words, more than you get out of just the patent rights, but that agreement may not be limited to the period of the patent, for a whole host of reasons.

What the legislation then says is that if the licence is for the patent inventor…..not to the patent per se, in other words it is not tied…..then you can release from it.  If I could put the argument round the other way, your Honours, what work is section 145 to do if the licence was just of the patent.  If the licence is just of the patent, you do not need 145 because it just ends.  There is nothing to be licensed.

So, coming back to – and I will come back to it again – when we say it is to the patent, it is to the statutory rights which exist by…..legislation only, and the commercial people reading that agreement would understand that the commencement day that the – to 14‑day licence is triggered by an assumed expiry date of that statutory right in the three different subclauses.  It is only if it expires does the licence commence and it did expire, and after that the licence was gone.  It was finished.  There was nothing more to it.

Then, years later, it revives – but is there any way reading that agreement to say commercial people were intended to deal with that later reminder.  Post 30 June 1989, there was nothing and certainly there was not the licences as has been suggested by my learned friend to some inchoate rights which a patentee might have to make an application.  I suppose you could have structured an agreement that way – but they did not.

The commercial assumption was plainly that after the relevant expiry date, whatever it may be, everybody, all competitors, would be free to sell the invention the subject of the patent.  The only thing that Sandoz got for its limited…..which was to discontinue the proceedings, which were going to continue anyway, was early entry in the sense of early entry over everybody else coming out at the same time.

KIEFEL CJ:   Mr Bannon, does the primary judge deal with why the two‑week march on the market, the early entry into the market, is of particular commercial value and that would be understood by the parties?

MR BANNON:   Yes, and that is part of our background which I will come to.

KIEFEL CJ:   Come to it in the course of your argument.

MR BANNON:   Yes.  That is where…..the members of the Court, in particular Justice Edelman, that is the nub of the argument, but I will now deal with the additional background material.

So I think I was going then to paragraph 47 of the primary judge’s judgment, and the benefit of 47 is simply to capture some of the matters I have been referring to which, as your Honour says, derives from Justice Lindgren’s judgment, paragraph 1 being the reference to the patent, known as the “Escitalopram Patent”, application of that in paragraph 2, 13 June 1989.  The last sentence of that paragraph 2 is:

The title . . . is:  “(+)‑Enantiomer of citalopram and process for the preparation –

So when it says, “Enantiomer of citalopram”, paragraph 3 says:

Citalopram is a molecule patented by Lundbeck –

That is by a prior patent, an earlier patent, and it:

is used for the treatment of depression.  Citalopram is a chiral molecule, a racemic mixture –

of two compounds.  It is chemically identical, but they have a “particular physical property” which separates them, namely, the direction in which they rotate polarised light which gives rise to this…..Latin designations - and notwithstanding, they have the same chemical structure.  In fact, as it turns out, they have mildly different therapeutic properties and, indeed, one can have one enantiomer which is lethal and the other non‑lethal, thalidomide is a prime example.  In paragraph 4:

In the case of citalopram, experimentation subsequent to the priority date has shown that the (+)‑enantiomer is in fact the S‑enantiomer –

which is the escitalopram:

It is commonly referred to as “S‑citalopram” –

It became known as escitalopram, and it has the trade name Lexapro.  Then:

The Patent discloses processes for obtaining escitalopram, and data showing that (+)‑citalopram –

which is escitalopram, which is the product we are concerned about:

is therapeutically more active than citalopram itself –

So it is a more active treatment for depression, and that is the 20‑year term referred to.  Paragraph 7 refers to the earlier patent which is the patent for racemic compound.  There are all sorts of debates in various parts of these proceedings as to whether or not the patent for the racemic compound anticipated the patent for the individual enantiomer and I do not need to go into those matters.  That is that part of the background.

Then at paragraph 7 of her Honour’s judgment, her Honour identifies that the date of the registration of Lexapro, which is the escitalopram product - and it was from that date that Lundbeck was free to supply escitalopram, which it did as Lexapro, commercially to the market, and it did so commercially and it was a highly valuable product and that is a relevant factor which would have been known to both parties, informing the likelihood of a three and a half year royalty‑free licence. 

As to the value of the product there is some extra material which we have to put in our applicant’s supplementary bundle of further materials, which if I could identify that, please, at page 17.  This is a bundle which is applicant’s supplementary book of further materials.  At page 17 this is an internal Sandoz email, yes, two years later, but, first bullet point:

Market size of escilatopram in Australia is AUD$41 mio (MAT March 2009) –

and a document at page 41 of the same bundle, there is a box there under “6.1 Market size”, “2008”, “32 Mio US$”, which takes you back pretty much to the relevant date of the agreement…..  Then some paragraphs in her Honour’s judgment also inform that matter.  So paragraph 2, I should perhaps explain, paragraph 2 of his Honour’s judgment also refers to CNS Pharma selling a product called “Cipramil”.  Cipramil was a product which was described as a “generic version of Lexapro”.  It was not being sold as at the date of the agreement.  It commenced to be sold from 2009.  That was the product sold by CNS Pharma.

I just refer to it for two reasons:  one, it just explains that that was not there at the time, but also, two, as would have been anticipated when the generics, including Sandoz, entered the market they took substantial market share from Lundbeck and the cheapest – the claim for damages was based on lost sales of our cheapest product which is Cipramil.  It is a fact of life – a notorious fact – that generics supply products more cheaply than innovator companies. 

That is the reason why they want to enter, and they take market share away, and they take it away, including from Esipram.  The significance of that is again the likelihood of a commercial reason for a company who had only ever – had not externally licensed anybody - so the only people who could sell it were companies within its group – giving up inevitably a substantial amount of its market share to generic competition for nothing for three years.  In terms of – at paragraph 240 of the judgment your Honours will find a reference to the fact that Esipram started at about 2009 – that is CNS Pharma.  At 264 there is her Honour’s reference to - her Honour says:

I also accept that certain other matters would have been known to the parties . . . They would have known that various generic entities, including Alphapharm, Arrow and Sandoz, were keen to launch their own –

They were keen to launch because it was a valuable market and keen to launch because they know that they would take away market share, and Sandoz was one of those.  Then at 452 there is a paragraph – this is in the damages section, but it records some evidence cross‑examining by Mr Hennessy for Sandoz:

MR HENNESSY:   Just pausing there for a moment, is this broadly correct that in about – up until June 2000 –

That should be 2009; it is a typo:

the escitalopram products had accounted for something like 80 per cent of all products sold by Lundbeck Australia or CNS?

In other words, it would have been known to both parties that escitalopram was an enormously valuable product.  It was the flagship product of Lundbeck and that is a material mutually known fact in working out whether the Full Court conclusions are…..  So that is item 7 in our running line.  I may have said Cipramil is our generic product.  I meant to say Esipram was our generic product.  So that is paragraph 7 of our outline. 

Paragraph 8 refers to the fact they have adverted to, the references are there.  On 22 December Lundbeck sought an extension of term based on the Lexapro registration which, if valid, would have taken it out to 13 June 2014.  The Commissioner initially granted it, but before the proceedings in front of Justice Lindgren commenced, or concluded at least, the Commissioner self‑amended it back to 9 December 2012. 

Then the proceedings are identified in the next paragraph, and perhaps I can just refer your Honours in the judgment paragraphs briefly to where that is referred to, which is paragraph 6:

Alphapharm commenced a proceeding to revoke . . . to remove the extension of term until 13 June . . . Lundbeck commenced a proceeding to prevent the Commissioner from amending . . . Lundbeck also cross‑claimed against Alphapharm for infringement –

That was the only party it cross‑claimed against.  Then at paragraph 9, Arrow brought a claim for revocation and removing the extension or, in the alternative – that is removed the extension to 13 June or in the alternative to 9 December.  Then Sandoz also brought a claim for revocation and rectification by removing the extension – so there was no cross-claim against Sandoz for infringement of patent.

Then, perhaps at the judgment at paragraph 15 – and admittedly this is post‑contractual but I had not referred to these paragraphs earlier – but from paragraph 15, her Honour details the sequence as to how it came about that the later extension was granted and the only significance of that is just to confirm the matters I was referring to earlier, namely the extension based on Cipramil which was first filed on 12 June – and just confirming what I said, as they are perfectly entitled to do, Sandoz unimpeded by the agreement challenged every step of the way along with the other generics.

Then, if I can then go to paragraph 269 of her Honour’s judgment – and this is the answer to your Honour the Chief Justice’s query of me a few months ago.  In paragraph 269, her Honour said:

For present purposes, it is enough to say that given that three generic entities were trying to revoke the . . . patent –

that is Alphapharm, Sandoz and Arrow:

and one . . . was also the subject of infringement proceedings, it would have been apparent to the parties to the Sandoz settlement agreement –

it was just resolved…..Sandoz discontinuing its case that:

Sandoz had little to gain from continuing in the proceedings and little to lose by trying to do a deal to exit the proceedings.

Just pausing there.  You had three companies spending the same amount of money on three legal teams arguing the same point.  Everyone was – I would not say desperate, but very keen to get into this market.  Sandoz leaving the proceedings was not going to affect Sandoz’s interest in having the patent revoked if it was a bad patent.  There were two well‑heeled – well‑represented parties who were going to continue to do that.  Nor did it impede Sandoz’s ability to say, at that point the extensions which had been granted would be set aside because again there were two parties pursuing those arguments.  Sandoz lost nothing, effectively, in getting out of those proceedings.

But, obviously, there is some benefit in getting rid of a party – that the nature of the benefit, as her Honour points out, has to be understood – it is not wildly significant from Lundbeck’s point of view.  There has to be some benefit.  Then her Honour continues:

The parties also would have appreciated that, for generic entities, every day counted for entry into a market to maximise the opportunity to take market share and so any early entry Sandoz could negotiate in exchange for discontinuing its proceedings would have value to Sandoz.

So, in other words, if you get a jump-start on the market, your first product, even if it is only by two weeks, you can say to the pharmacist, we can supply you from this date, earlier than anybody else and, no doubt, the way these things work – no doubt, they do work this way.  The generics start to muster their forces as the date of the expiry of a valuable patent approaches, and they start approaching pharmacies – anybody who has the ability to be two weeks ahead – and say we can supply you – two weeks is important.  Once they get market share, they try to hang on to it.  So, there is a value in it and for Lundbeck to give up that value royalty free for two weeks is understandable ‑ it is a commercial negotiation.  To give it up for three and a half years is madness and, as her Honour says:

And for Lundbeck A/S, one less party to deal with was not without value, but they still had to contend with Alphapharm . . . and Arrow who were both seeking revocation –

and that is ‑ ‑ ‑

EDELMAN J:   Mr Bannon, you keep saying to give it up for three and a half years, but the commercial assumption, at least the finding by the primary judge, was that it was not going to be a three‑and‑half‑year period.  There was only a very remote chance that there would be a three‑and‑a‑half‑year period.  There would have to be a retrospective extension of the licence in order for anything more than the two‑week period to be given up.

MR BANNON:   Correct.

EDELMAN J:   So it is not a case of commercial madness.  It is a case of, on the one side, potentially giving up a very small risk and, on the other side, potentially taking a very small risk.

MR BANNON:   Yes, but once one understands, as both the Full Court and the primary judge found, they were only intending to deal with – the agreement was not intending to deal with, which it plainly was not - on the one side, why would Lundbeck commercially or why would reasonable parties understand the agreement as Lundbeck giving up the benefit for that post-extension, albeit it might be a slight chance, for nothing to Sandoz and on the Sandoz side, if understood objectively, be exposed to that risk?  No doubt it thought it was not much of a risk.  Again, looking ‑ ‑ ‑

EDELMAN J:   Is that not ultimately what the question comes down to - who bears this very slight risk?

MR BANNON:   Yes, ultimately, but the question comes down to, would one understand this agreement as intending to deal with that risk, understood objectively?  That is the question.  In answering that question objectively, one has to expose the various possibilities and the various possibilities dictate that one has to undertake what would have happened, accept if it is either designed to deal with this risk or it is not.

If it is designed to deal with this risk, that involves the conclusion of assessing as what I regard as “madness”, I put as “madness”.  If it is designed to deal with this risk, you have to say that Lundbeck was saying, “We would give up effectively three‑and‑a‑half years for nothing”.  If it is not designed to deal with this risk and Lundbeck was free to do it, we say it must be right because they were not opposed from doing it.

The only logical way in which they would do that and pursue it would be on the basis that they were not letting a generic have a royalty‑free licence at that point because there is no point of pursuing extension.  Effectively there is almost no point because, if you let one generic in, they will mop up the generic slice.  If you let more than one in, four of them may take a bit more because they compete with each other, but one generic is always going to outsell you, as we see from the damages findings.

So that is why I keep saying you have to test the Full Court’s construction on the basis that the parties commercially intended to address the risk in this way, which deprived, in effect, Lundbeck of the benefit of any post‑expiry extension and we say that is the commercial nonsense outcome which her Honour found.

So that was point 11 I think I had got to.  There is just one other paragraph which comes up in the damages period.  It is paragraph 421.  This is really to say, well, this is what must – everyone would have appreciated would have happened.  In the last sentence of paragraph 420 her Honour says:

As a result, the starting point –

this is on damages:

must be that every sale of Sandoz’s escitalopram products is a lost sale of a Lundbeck escitalopram product.

The reason I say that in this case 1:1 substitution - 

Now, this was the introduction of a section of her Honour’s judgment in which her Honour found that because there are other generics in the market, although every sale lost by Sandoz – her Honour said it would not necessarily be a sale lost to Lundbeck because it might be lost to another generic in the market and the Full Court overturned that finding because, in other words, Sandoz cannot rely on what would be another person’s infringement.

But the significance of it for this purpose is to say if the other generics had not been there, then all of those sales would have been locked up by Sandoz, or most.  That is why I say…..looking at the agreement, assuming that it is intended to deal with this risk produces, we say, an unpalatable - uncommercial result.  Then in paragraph 13 we refer to the fact that both the Full Court and her Honour found that the validity – the parties proceed on the basis:

The validity of the Patent and the length of any extension would be known by May 2009 –

and paragraph 265 of her Honour’s reasons make that clear.  It is at about line 30 on the page:

it is likely that they would have anticipated knowing the outcome (including any appeal) before 13 June 2009.

That gets the background of the first sentence where Justice Lindgren had ordered the various proceedings to be heard between April and May 2007.  To similar effect is her Honour’s reason on paragraph 294.  It is the second sentence on paragraph 294:

Given the terms of cll 3(1) and 3(2) the parties must be taken to have understood that they would know by 1 May 2009 when the 144 patent would expire . . . it left open the risk that they might not know if the contingency had been satisfied . . . Both parties must be taken to have accepted this risk which . . . would have appeared insignificant.

We say that is a correct analysis.  In other words, the agreement did not address that risk.  Then similarly in the Full Court at paragraph 59, last four lines, line 30 on the page:

We think it unlikely that the parties turned their mind to the possibility that they would not know by 1 May 2009 when the Patent would expire.  Had they done so, we would expect to find some express provision dealing with such an eventuality in the settlement agreement.

So, what we have are concurrent findings that the parties were not contemplating, in addressing this agreement, the circumstance which occurred.  So, to make it do so is an inappropriate approach.  Then, paragraph 60, on the same page, about line 40:

We consider that the parties were at that time likely to have been operating under the common assumption that the expiry date of the Patent would have been established by 1 May 2009 -.

Paragraph 62, second sentence:

We are not persuaded that both parties entered into the settlement agreement knowing that the expiry date might not be finally determined -

Paragraph 64, first sentence again.  Then the “objective possibility” – this is our point 14 - an extension of time and an extension of term was objectively remote.  Her Honour addresses that in paragraphs 260 and 263, where your Honour goes through the various hoops which had to be addressed, in particular 260 and 263.  I will not pause other than to refer your Honour to that paragraph.  Then at paragraph 292 her Honour says:

It is necessary always to keep in mind that the Sandoz settlement agreement was executed in February 2007 and the earliest possible expiry date of the 144 patent was two and a half years away.  I accept that Lundbeck A/S was free to apply for an extension . . . if it chose to do so.  Had it obtained –

it before that date, et cetera.  Then paragraph 293:

I do not consider it legitimate to test the operation of cl 3(1) against what actually occurred in the present case. 

Then paragraph 69 of the Full Court judgment, last sentence.  It was described as remote:

the remote possibility that the term of the Patent might be extended sometime after it had expired.

We say in item 15, the commercial object of the proposed licence was – the settlement agreement – was to grant to Sandoz a two‑week early entry.  That is the actual email to which reference is made – we have given the reference to that – that is the applicant’s book of further materials pages 30, 29 and 33.  I do not need to go to that, but they are sufficiently set out firstly in the Full Court judgment and also in the primary judgment, firstly, in the Full Court judgment at paragraphs 50 to 54.

KIEFEL CJ:   At that point, Mr Bannon, it might be a convenient time for us to take the morning adjournment.

MR BANNON:   Yes, your Honour, thank you.

AT 11.02 AM SHORT ADJOURNMENT

UPON RESUMING AT 11.17 AM:

KIEFEL CJ:   Yes, Mr Bannon.

MR BANNON:   Thank you, your Honour.  I was up to paragraph 15, namely, the commercial object was a two‑week early‑entry licence.  I said I would not go to the underlying documents, but I think I will, if I may.  If I could invite your Honours to go to the book of further materials, firstly, at page 30, your Honours should find there:

Dear James

As discussed I have now received feedback from my legal department ‑ ‑ ‑

KIEFEL CJ:   Mr Bannon, we not only have books of further materials.  We have supplementary materials and we have materials that were handed to us this morning.  Could you identify for me which one I am looking for?

MR BANNON:   Yes.  It is the appellants’ book of further materials dated 15 April 2021.  The particular document is behind a tab marked “Annexure SM‑4” and it should have a page number on the top right‑hand corner in red 30.

KIEFEL CJ:   Yes.  We do not have tabs, but it starts “Dear James”.  Is that correct?

MR BANNON:   Yes, thank you.  It starts off:

Dear James

As discussed I have now received feedback from my legal department and they have agreed to the following . . . 

Thus we believe that we should settle with Sandoz now.

Re the Sandoz offer, we have however discussed an offer a little different to what was initially proposed.  How about offering Sandoz a ‘free exit from the case’, (as in the initial proposal) and then a 2 weeks early entry in either 2012 or 2015 depending on the outcome of the case.

I think 2015 should be 2014.  Then the response from Mr Sharkey is ‑ ‑ ‑

KIEFEL CJ:   Mr Bannon, how did this material get before the court?

MR BANNON:   It was part of the genesis of the transaction, your Honour.

KIEFEL CJ:   But it is not correspondence between the parties.  It is showing the thinking of one party.

MR BANNON:   I am sorry, your Honour.  This is correspondence between the parties.  This is from Mr Steve ‑ ‑ ‑

KIEFEL CJ:   I am sorry.  I wrongly assumed it was an internal letter.

MR BANNON:   Yes.  Sorry, it is a bit confusing, your Honour.  It refers to the internal matter, but it is Mr Maritz of Lundbeck reporting the internal view to James Sharkey of Sandoz.

KIEFEL CJ:   I see.  Thank you.

MR BANNON:   Yes, I am sorry.  That appeared from the page before, your Honour, page 29, which shows that that was part of an email from Mr Maritz to James Sharkey.  The response from Mr Sharkey is:

Thank you for your email . . . 

I believe this is a good outcome for both our companies.  I will call you on Monday and begin preparing draft documents -

That is the two‑week reference but perhaps in light of some of the discussions this morning, it is important that I go to a couple of other bits of material in this bundle.  So if one goes forward then to page 33, Mr Sharkey has an email following that exchange to Mr Maritz enclosing a draft document.  In the third paragraph he refers to adding a “stockpile” portion, about which there is no debate.  Then he encloses a draft which includes – so the draft starts at page 35 and then it includes on page 38 - clause 3 relevantly was in the chapeau described as a “licence to exploit the invention”.  Then, consistent with that, at page 39 ‑ ‑ ‑

EDELMAN J:   Mr Bannon, it appears that, at least in this draft, the phrases “exploit the patent” and “exploit the invention” are regarded as synonymous.

MR BANNON:   We respectfully submit it shows – perhaps before I respond to that, can I continue the exchange, your Honour, and perhaps I will suggest something to the contrary of what your Honour suggested.  If one looks at page 39, this draft included:

permission to sell pharmaceutical products containing s‑citalopram from the date of the commencement of the licence granted under clause 3.

That would reflect the licence to the invention rather than the patent.  Then the response to that is from Mr Maritz which starts at page 45.  The email at page 46 is the responsive draft and at page 49 the clause, which we see in the final version, they add “non‑exclusive”, but significantly they delete two things.  They delete:

exploit the invention the subject of the Patent –

so it becomes “the Patent”, because there is a difference and Lundbeck recognise it – both parties recognised it.  Over the page ‑ ‑ ‑

EDELMAN J:   Although in the original version the heading “Licence to exploit the Patent” was obviously regarded as synonymous with the phrase “licence to exploit the invention the subject of the Patent”, otherwise their heading is completely different.

MR BANNON:   If one then goes to page 50, your Honour, the “permission to sell . . . from the date” is deleted.

KIEFEL CJ:   Mr Bannon, are these actual negotiations about the terms of the settlement relevant to the construction of what was ultimately agreed?

MR BANNON:   Your Honour, as always…..question.  Perhaps there are two things which arise out of it.  The famous – or perhaps infamous Codelfa exception to whether parties agree that something shall not be part of the agreement, it would fall within that because what they are agreeing is that this agreement is not a licence for the invention, and it is not a licence from the date to sell the product.  That is the leading clause 4 - I am sorry, your Honour Justice Gageler.

GAGELER J:   No, finish your answer, please.

MR BANNON:   The second answer is to say this is a living example of how parties – commercial parties in this field, both highly experienced in relation to patents, understand the difference between exploiting an invention and patent and it reinforces as a concrete example – going back to the discussion I had earlier today - that parties to the agreement had different licence agreements.  One can be with the patent, one can be to exploit the invention.  I am sorry, Justice Gageler.

GAGELER J:   Mr Bannon, I just wanted to ask whether these nuances of drafting history feature in the judgments below with which we are concerned.

MR BANNON:   No, they do not.  The reference to the two week appears but the proposition that the licence was to the underlying invention versus the patent is not a proposition which, in my recollection, featured below.  It certainly got some air time on the special leave application – and it is obviously got some air time in our friend’s submissions, but it is this ‑ ‑ ‑

GAGELER J:   Perhaps that is a sufficient answer.  I do not want to stop you from presenting your case, but you seem to be going back to primary material and asking us to deal with a potentially disputable approach to contractual interpretation to deal with an issue that you say really was not an issue.

MR BANNON:   Yes, I accept that and that creates a potential problem, but I am only using it – I say it is permissible but I was really only using it to reinforce what we say is the argument I was putting earlier that there is – I use the word “clear” distinction between a licence of the patent and a licence to the invention and the licence to the patent in the terms of this agreement is clear – it is not a licence to an invention nor it is a licence to sell the underlying product.

EDELMAN J:   Mr Bannon, the difficulty I am having is that, in its literal terms, a licence to a patent is a nonsense because a licence is a freedom – it is a freedom from liability – it is not a grant of anything – it is not a grant of a particular right in this context.  So, a licence to a patent could only be a freedom from something.

MR BANNON:  It is a freedom from a prohibition which is otherwise excluded by the Act.  It is the Grain Pool analysis, which came up of course in the Calidad Case, which I do not think was overturned, that aspect of it.  It is a licence to ‑ ‑ ‑

EDELMAN J:   It is a freedom from liability which empowers a person to do something, but what you want to do is you want to tie that to the period of the patent by the words “to the Patent”.

MR BANNON:   Absolutely, I do,  because the inability to do it is only precluded by the existence of the patent in…..because otherwise people are free to deal with compounds, bits of product, put them together any which way they want.

EDELMAN J:   The alternative would be that the words “to the Patent” mean the subject matter of the patent.

MR BANNON:   I have addressed that.  We say, obviously with great respect, that is not correct, if I may say so, your Honour.

GLEESON J:   Mr Bannon, is this construction point crucial to the success of your argument?

MR BANNON:   I suppose that may depend on things I cannot know as to how members of the Court may approach it, but we would submit, no, that looked at from a commercial point of view this was a two‑week licence, for so long as the patent was on foot and the patent expired on the 3(1)(a) scenario on that date and the agreement was not intended to deal with anything which happened after that date.  The parties were left to…..devices.  I am not sure whether that answers Justice Edelman’s concerns, but so far as we are concerned, that is another way of looking at it.  Maybe it is a distinction without a difference.

GAGELER J:   Mr Bannon, is one way of interpreting the reference to a licence to the patent in light of section 13 of the Act and seeing that the patent is something that gives the patentee exclusive rights during the term of the patent and this is permission to exercise those exclusive rights during the term of the patent or, more specifically, in the case of this licence as you would have us interpret it during the last two weeks of the term of the patent?

MR BANNON:   Yes.  If I may say so, we do adopt that, your Honour, or say that if we have not already said it, then that is the analysis which we apply.  Then on the two‑week part, the Full Court judgment at paragraphs 50 to 54 refers to this correspondence, and at paragraph 54 at line 20 ‑ they also referred to a later email which I do not need to trouble about – their Honours say:

Like the first email, it also indicates that it was the common intention of Sandoz and Lundbeck that Sandoz receive the benefit of a 14 day early entry licence from Lundbeck.  However, it also has nothing to say as to what would happen in the event the Patent expired before any extension of term was granted –

Then her Honour’s reasons – and I do not need to go to them – to similar effect in relation to the two‑week licence point, we have given the reference there to those paragraphs in the judgment in our outline at paragraph 15.  Our point at paragraph 16 I have already made - the object of the agreement did not include addressing a post‑expiry extension.  The reference to the primary court’s judgment I am not sure I have actually taken your Honours to, but it is there, and I have taken your Honours to the Full Court judgment.

The next point ‑ I think I have already said that Sandoz had rights to oppose any extension, it was not inhibited, and equally Lundbeck was not inhibited from pursuing any such extension.  There we give references to royalty free licence for any post extension makes no commercial sense, their Honours’ reference at paragraph 269 and 300 and 421.  The Full Court response to that ‑ perhaps I should just go to it ‑ at paragraph 63, which is obviously to the contrary.  Towards the end of paragraph 64, the top of page 263 says:

Sandoz could move forward knowing that it had the benefit of an irrevocable licence to engage in the activities . . . from 31 May 2009, all other relevant activities that would otherwise amount to an infringement.  This appears to us to be an important advantage –

Again, that assumes that the agreement is intended to deal with the circumstances which happened.  Now, then 65:

On the other hand, if Lundbeck’s construction . . . is accepted, Sandoz was left in a position of much greater uncertainty.

Well, it was left in the position of having to rely on its rights against a possibility which objectively would be regarded as remote.  Then one comes to paragraph 69 where their Honours conclude:

On its proper construction cl 3 provided Sandoz with the opportunity to prepare to enter the market . . . and to commence supplying . . . without risk of liability . . . if the Patent expired on 13 June 2009.  It conferred on Sandoz the right to enter the market . . . in circumstances where, provided the Patent expired . . . it would not need to concern itself with what was, in February 2007, the remote possibility that the term . . . might be extended sometime after it had expired.

But that conclusion, we respectfully submit, cannot stand with her Honour’s finding in paragraph 59 that the agreement on its face could not be understood to - or the parties were not intending to deal with the very circumstance which arose.  So, in other words, you cannot say, as is obviously correct, the parties were not contemplating this agreement and then interpret the agreement as dealing with this very circumstance and say that this gave Sandoz the benefit of the three‑and‑a‑half‑year licence.

In terms of whether or not Sandoz would have accepted this risk at the time, if they had thought about it objectively, entering the market against the risk that the extension might be granted, we know from her Honour’s findings, paragraphs 346 and 348 – I do not need to go to those - her Honour deals with an argument which was raised as to whether or not as a discretionary reason there should be no damages.  Her Honour rejected that, both as the likely power…..as the facts where her Honour made it clear that in those paragraphs, 346 to 348, that they entered the market with their eyes wide open – perhaps I should go to those, 346 to 348 – their eyes wide open as to the risk that the extension might be granted – that is 346 and 348.  Paragraph 348:

It took a calculated risk.

The internal documents which were disclosed recognised that there was a risk that they might get the extension, because the extension gets advertised, extension of term, and they took that risk, as did the other generics.  So in arguing from a commercial sense point of view, the Full Court says, “Well, Sandoz wouldn’t have subjected itself to that risk”.  But we know when faced with that risk, that is exactly what they did, which is consistent with everybody’s view objectively that the risk was low.  It was not addressed by the agreement.  The parties were left to their chances, externally to the agreement.

Then paragraph 18 of our outline, it “makes no commercial sense” and I think we have also included some paragraphs there of the Full Court judgment – or perhaps the order.  That is to give some teeth to some of those matters I was putting forward earlier.  The order for damages of her Honour appears at page 199 of the book, and that was an amount to pay in lost sales, about $17 million plus interest on top of that, as a basis of lost sales. 

Then if one looks at the Full Court judgment at 127 and 128, in those paragraphs their Honours are rejecting the 25 per cent reduction her Honour encountered in those paragraphs.  What they refer to is the fact is that when the generics did enter it was dominated by four players:

Alphapharm, Apotex, Aspen and Sandoz accounted for 90% of the –

sales.  So that is why I say considering it from the point of view of the total exposure of this agreement, assuming you interpret it to say the parties commercially intended, from Lundbeck’s point of view, that if they did get – that (a) they were free to apply for a post‑extension and, if they did get it for three and a half years, that Sandoz – the reasonable party would think Sandoz would get a commercial‑free licence, being the only one with a royalty‑free licence to get not only the slice of the market they did get, which was some $16 million, but likely a great slab of the other three‑quarters as well which they did not get.  So you are talking about in the order of $80 million.

GAGELER J:   Mr Bannon, while we are focusing on the commercial reality, how do you deal with what is said by the Full Court at paragraph 58, which is looking at the commercial reality from Sandoz’s perspective and that is having entered the market being required to pull out of the market?

MR BANNON:   They would only be required to pull out of the market if there was a later patent extension.

GAGELER J:   That is the point.

MR BANNON:   Yes, I understand that, but the risk of that would be - one has to look at it from both sides, your Honour.  So, coming back to the point I was making earlier.  You look at the construction commercially, objectively understood, testing it by assuming that it applies to the circumstance that applied.  Would somebody in Sandoz’s position have been prepared to run the risk referred to there in circumstances when, objectively considered, the idea of a post‑expiry extension was remote – remote to vanishing.  From Sandoz’s point of view that is a remote risk.

GLEESON J:   Mr Bannon, is it really a matter of a potential requirement to withdraw?  Surely it would be more a matter of forming a view that the two‑week licence was not worth the candle, so there would either be no entry or there would be entry at risk of a future damages claim. 

MR BANNON:   Yes.  I think the idea we are drawing is a slight overstatement.  The circumstance in which this would arise – whether you would have to have it occur a day after or something or other, but the range of dates includes the range of dates, which happened here, the extension was not granted until well after the last day of the extension, which was 2014.  So, in other words, would they take the risk that they would enter, along with all of the other generics who entered, and run the risk of an infringement suit, unlikely to be withdrawing, but…..pay damages ‑ ‑ ‑ 

STEWARD J:   Mr Bannon, would you agree with this proposition, namely, that given the power in section 223 to extend, that every generic faces the same risk that Sandoz faced here?

MR BANNON:   Yes, absolutely, and every generic, as it turned out, entered, facing that risk, and so why would one pose – as the Full Court does – say Sandoz would never agree to that risk.  Now, if they had paid a fortune for this licence, maybe, but they paid nothing, and they did not get very much. 

I think, your Honours, the proposition which I put – which we continued under the seminal agreement construction – quite frankly I have dealt with those in passing – but, in particular, we emphasise her Honour’s reasoning, namely that the patent referred to – and this is in paragraphs 21 and 22 – is the patent as it stood before its expiry in its unextended form.

Just in passing too, I think, the Full Court said we did not put the argument that her Honour found.  In paragraph 21, we get a reference to paragraph 248(1) of her Honour’s judgment, where her Honour makes our alternative argument.  We are agnostic as to whether or not the licence started two weeks before the end of December 2012 or two weeks before June 2009.  We put both arguments and that is referred to in 248(9).  It is also referred to in the middle of paragraph 324.  Her Honour found our alternative argument. 

At paragraph 23, we are referred to the fact that the agreement was not directed to assuring Sandoz of freedom from the patent.  Paragraphs 317 to 328 of her Honour’s judgment address something which I adverted to earlier, which was an argument put before her Honour but not pursued thereafter - looking at 317 the releases granted by Lundbeck in paragraph 317 effectively precluded Lundbeck bringing these proceedings.

At 323, her Honour says the releases were not to be so construed.  An alternative case was referred to in 324.  In 325, her Honour says it is profoundly improbable that the releases were intended there.  I think some of our learned friend’s submissions rely on the releases in the agreement as informing a construction for which they contend but her Honour found it was not appealing as the releases were not directed to this and if indeed they were concerned to ensure that there would never be any infringement suit, they would be free to use the patented invention thereafter.  It is a remarkable thing and it is not referred to on the releases.

EDELMAN J:   Your point is the licence that you get is just the licence to the freedom to exploit the invention for the period of the patent, not the freedom to exploit the patent?

MR BANNON:   Yes.

EDELMAN J:   What is meant then, by heading 3, “Licence to exploit the Patent”?

MR BANNON:   It means what we say – it means namely that the licence to exercise the right which is otherwise precluded by reason of section 13.

KIEFEL CJ:   Do you say it means that it allows to do that which would otherwise infringe the statutory rights contained in the patent?

MR BANNON:   Yes.  It is a heading and one should not read too much into it.  Exploit the patent perhaps more technically would be you could sell that patent to somebody and obviously that is not what they were intending.

Then paragraph 24 we refer to the Full Court does not address the issue of the fact that the patent did cease, and there is this interregnum and the agreement that there is no…..doctrine of feeding title or otherwise, but perhaps all of that disappears once one accepts that the system of patent would not give the right to exploit the invention, the subject of the patent.  Maybe all those issues go away.

In 25, we absolutely say it is a construction issue and not an implied term.  One good way of testing it is to say if you put into the chapeau the words “two‑week licence”, in other words, a two‑week licence commencing on X, you would say why on earth do you need that?  It is obvious it is a two‑week licence.  So, we say you do not go there, and it is a matter for construction, but it is not a bad way of testing it.

KIEFEL CJ:   Mr Bannon, with regard to the two headings which follow in the balance of your submissions to be made, the order that you seek if the appellants are successful is for the primary judge to determine damages accepting that the Full Court was correct in relation to adjustments which need to be made.

MR BANNON:   Yes.

KIEFEL CJ:   So what are we dealing with in relation to section 79?  Section 79 is to deal with if you are not successful?

MR BANNON:   Perhaps I could say two things.  I will be brief on those two issues.  I appreciate the time, I am sorry – but to answer your Honour’s question directly, the effect of the Full Court decision is to cut down the damages claimable by the exclusive licensee.

KIEFEL CJ:   Yes.

MR BANNON:   Because it says that the rights granted by section 79 do not travel through via exclusive licence to exclusive licensee.  So we lose I think it is about a million-odd dollars plus interest.  I can put the argument very briefly, your Honour.  The second argument relates to interest up to the judgment.

KIEFEL CJ:   Yes.

MR BANNON:   Perhaps I will deal with interest up to the judgment firstly because that is even shorter.  The starting point is to look at section 120, which provides in subsection (1) – this is page 121:

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

(4)Infringement proceedings must be started within:

(a)3 years from the day on which the relevant patent is granted; or

(b)6 years from the day on which the infringing act was done -

Now, section 79 says that:

the patentee has, after the extension . . . the same rights to start proceedings in respect of the doing of an act during the period:

. . . 

as if the extension had been granted at the time when the act was done.

Section 79 must be read into section 120.  The only limitation period which exists is that which appears in 120(4)(b).  If you do not read 79 into 120 you have no limitation period.  That cannot be right.  The effect of 120 is to provide that the limitation period is six years from the date when the infringing act was done.  Here, the infringing acts were done in 2009.  At the time they were done they did not have the character of infringing acts.  Section 79 retrospectively deems them to have the character of infringing acts.

So, for the purposes of the limitation period, that is the date of the acts.  Her Honour found section 79 operates for all purposes, including when the cause of action arises.  If it dictates the date of limitation, it logically dictates the date of interest.  That is our submission and her Honour’s position that should be accepted.

Secondly, and if this argument could be put pretty much on these two sections, on the other point about the exclusive licensee, section 79 says:

the patentee has . . . the same rights to start proceedings in respect of –

those things.  All that means is they can start proceedings using section 13 rights because there is no definition of section 13 rights in section 79, and when one goes to section 120, 120 just simply says, the patentee can bring infringement proceedings and so can an exclusive licensee.

So what section 120 does is it says, in effect, if a patentee has rights to bring proceedings, an exclusive licensee, if one exists, can bring those proceedings.  So what we say is section 79 feeds into 120 to enable the patentee to bring proceedings, and if the patentee can do it then if there is an exclusive licensee they can bring proceedings.  The definition of “exclusive licensee”, which appears at page 234 of the bundle, supports that:

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.

So what would be the point, we would say, of a section retrospectively extending the rights of a patentee where there is an exclusive licensee where the effect of a Full Court’s finding is to say, well, in fact the patentee cannot even exploit those rights because it has given it exclusive licence ‑ ‑ ‑

STEWARD J:   Mr Bannon, just to clarify, do you say that the fault of the right to commence proceedings flows from having the right to exploit the patent or from section ‑ ‑ ‑

MR BANNON:   Yes, from section 13.

STEWARD J:   From section 13.  Thank you.

MR BANNON:   And, indeed, I think, as we said in our outline, and this was not in our submissions – it is a more recent thought, I accept – that if one looks – and I do not need to go to it – but in the 1903 Act there is no reference to a patentee having the right to bring proceedings for an exclusive licensee.  The 1952 Act brought in a reference to the exclusive licence – tried to bring in proceedings in section 114, and that was after the UK 1949 Act brought that in.  But even in the 1952 Act, which we have given your Honours recently - the relevant sections are 113 and 114 - sorry 113, which says:

Jurisdiction is, by this section, conferred on the High Court to hear and determine an action or proceeding for the infringement of a patent, but this section does not deprive another court of jurisdiction - 

So that does not actually say that the patentee has a right to bring proceedings.  Then 114:

(1)      An exclusive licensee may bring an action or proceeding for the infringement of a patent.

(2)      The patentee shall, unless he is joined as a plaintiff in the action or proceeding, be joined as a defendant.

So, in other words there is no section which actually said the patentee had the right to bring proceedings.  None ever existed previously.  If one goes back to the old English acts, it was never there.  It was assumed, just like the right of real property – if you have a right of real property on the Real Property Act, it does not say you have a right to bring proceedings, it means you just have rights that you enforce. 

What the point of bringing in 114 was to add – add that exclusive licensee could also be brought in proceedings.  It did not say the patentee as well because that was assumed, and although 120…..a patentee or exclusive licensee, it is really just a procedural provision.  It is not granting – it is not intended to grant the patentee a new right which they did not already have. 

So that is why we say it is all based on section 13.  Once you have those exclusive rights obviously you can bring proceedings – exclusive licensee can as well.  Section 79…..feeds those rights and adds to those rights in section 13 but the combination of 13 and section 79, the patentee can bring proceedings, and if the patentee can bring proceedings the exclusive licensee can. 

There was no argument before the court below, before her Honour, and none expressed above, that the exclusive licence which was granted to Lundbeck covered any extended rights.  There is no construction issue in relation to that. 

Her Honour’s reasons on this point I might say are diverted a little bit by an argument our learned friends framed as to whether or not you could grant exclusive rights to these rights, but at the end of the day the argument I have put is accepted by her Honour, albeit there is a lot more there in her Honour’s reasons.  

For those reasons we would say the Full Court’s decision on interest and on exclusive licensee should be overturned, which would result, if we were successful on it going back to the trial judge to answer your Honour’s - to confirm your Honour the Chief Justice’s question, to address the calculation of damages.  May it please the Court.

KIEFEL CJ:   Thank you, Mr Bannon.  Mr Dimitriadis.

MR DIMITRIADIS:   Thank you, your Honour.  May I deal first with the settlement agreement issue, which is addressed in Part A of our three‑page outline.  What I propose to do is to make some points by way of introduction, and then deal with each of the propositions that we advance in that section in a little more detail. 

In our respectful submission, your Honours, the Full Court was right to conclude that clause 3(1) of the settlement agreement conferred a licence on Sandoz that covered the period of Lundbeck’s claim on the patent.  That is supported by the express terms of the clause considered in the context of the agreement as a whole, and the surrounding circumstances as they stood in February 2007 when the agreement was made. 

As to the express terms we submit they are clear.  Clause 3(1) grants a licence to the patent.  It specifies a start date for that licence, but no end date and it provides that the licence is irrevocable.  In those circumstances we respectfully submit that a simple way of testing the matter is to ask, on the plain language of clause 3(1) where subparagraph (a) applies, as it did here, can Lundbeck sue Sandoz for infringement of the patent in respect of acts that occur during any period occurring after 31 May 2009?

We submit that the answer to that question must be no, in circumstances where the licence was to the patent, was effective from 31 May 2009, had no end date, and was irrevocable.  Yet to bring such an action for infringement of the patent is precisely what Lundbeck did do in the proceedings below. 

In our submission, the fact that Lundbeck had a cause of action which arose under section 79 of the Act which had retrospective operation does not take it outside the ambit of the licence in clause 3(1).  It was an action for infringement of the patent, being the same patent which was the subject of the post‑expiry extension of term and the licence which was granted by clause 3(1). 

In short, your Honours, what Lundbeck seeks to do is to take the benefit of the provisions of the Act which allowed it to enforce the patent retrospectively in relation to acts that occurred after the expiry of the patent, but at the same time to deny the operation of the licence in clause 3(1) in relation to those same acts, and that is notwithstanding the fact that clause 3(1) grants a licence to the patent with a start date and no end date, which is irrevocable. 

As to the context of the agreement, your Honours, clause 3(1) was part of a comprehensive settlement, the object of which was to resolve all current and future disputes between Sandoz and Lundbeck in relation to the proceedings between them.  As part of that settlement, Sandoz granted releases and gave up rights including, importantly, its right to seek revocation of the patent. 

An application for revocation of the patent would be a key plank in any defence to a future claim by Lundbeck seeking to enforce the patent.  Seen in that light, as the Full Court recognised, clause 3(1) should be seen as establishing the circumstances in which Sandoz would be free to start selling its products without fear of infringement or any future claim being brought by Lundbeck under the patent.

As to the surrounding circumstances, the settlement agreement is to be construed from the perspective of a reasonable business person having all the background knowledge of objective matters which would reasonably have been available to the parties in the situation they were in at the time of the contract.  As the primary judge found, that included knowledge of the…..of the Patents Act which provided for the grants of extensions of time and also extensions which may be granted post‑expiry which would engage the provisions of section 79 of the Act. 

In that regard, as your Honours have seen, both the primary judge and the Full Court accepted that it was objectively possible, based on the provisions of the Act, that Lundbeck could seek and obtain a post‑expiry extension of term.  Now, that possibility was remote as at February 2007, but nevertheless was one that existed objectively at the time of the settlement agreement.  We submit that the Full Court was correct to find that clause 3(1) accommodated that possibility by granting Sandoz a licence to the patent with a start date and no end date, and which was irrevocable. 

Your Honours, in considering those matters it is important to bear in mind both the effect of the licence conferred by clause 3(1) and the rights which are the subject of that licence.  A licence in this context does not convey a right or interest in anything.  Rather, it is in the nature of a permission or a freedom to do something that might otherwise be unlawful or might otherwise attract some form of liability.

Now, here, the licence in clause 3(1) is to the patent.  As the authorities in this Court make clear a patent confers on the patentee the right to exclude others from exploiting an invention.  Thus, the licence granted by clause 3(1) involved the conferral on Sandoz of the permission – or freedom to engage in those acts of exploitation. 

Importantly, as the primary judge and the Full Court accepted, the patent carried with it not only rights in respect of its original term, but also contingent rights – and they were contingents rights in respect of any extended terms of the patent – in particular, there were contingent rights which arose on the grant of the patent under section 79 of the Act, being rights which would come into effect in the event that a post‑expiry extension of term was granted and then would enable Lundbeck to sue for infringement in respect of the period of the post‑expiry extension.

As the primary judge explained, those rights arose in the contingent sense on the grant of the patent.  They were rights which were kept with the patent, as at the date of the settlement agreement.  They were capable as at that date of being the subject of a licence, or a permission, or freedom in respect of any period that might be covered by a post‑expiry extension of term.

We respectfully submit that the patent, and thus the licence, did not cease to exist – did not become spent – upon expiry of the original 20‑year term on 13 June 2009.  That is so by reason of the provisions of the Patents Act including section 79.

In short, although the patent term had expired, Lundbeck’s contingent rights under section 79 remained.  Indeed, as at the time of expiry of the original term, Lundbeck had on foot an application for a post‑expiry extension of term.  It remained the patentee under the Act and it pursued that application which it had filed on the last day before expiry of the original term.  In those circumstances, there was nothing left – nothing in existence on expiry of the original terms.  The patent continued to exist ‑ ‑ ‑

KIEFEL CJ:   I think it is put against you that what you are contending for on the construction of clause 3 has such great commercial consequences for Lundbeck, one would have thought you would see a little more expressed about it in clause 3.  You are really asking for a very expansive reading of something which, putting it at its highest for you, has a beginning date but not an end date specified, so that one is thrown back to what the patent meant.  But there is no discussion about anything which will occur if an extension is or is not applied for and, in fact, Lundbeck did not apply until just before the expiry of the patent.

MR DIMITRIADIS:   Yes, your Honour.  There are several matters relating to that commercial context and the objective circumstances as at February 2007 which are relevant.  Several matters are relevant to the prospect of a post‑expiry extension of term arising.  The first one is that that prospect is to be considered as at the date of the settlement agreement, in February 2007, at which time it was objectively remote.  That is important in considering the submissions that are made by Lundbeck to the effect that the Full Court’s construction of the agreement involved a three‑and‑a‑half‑year licence given for no ‑ ‑ ‑

KIEFEL CJ:   Accepting, as you do, both the primary judge and the Full Court said that the likelihood of an extension or the matter being extended was remote, are you saying that effectively because of the way in which clause 3 was termed that Sandoz had a windfall?

MR DIMITRIADIS:   Your Honour, it is not a windfall.  This was a comprehensive settlement agreement between the parties seeking to resolve all disputes between them in relation to the proceedings as part of which, as I have submitted, Sandoz gave up its right to seek revocation of the pact.

KIEFEL CJ:   But you accept that the parties had not turned their minds to the matter not being resolved within a certain period.

MR DIMITRIADIS:   Your Honour, subjectively there is no evidence that they did and your Honours have seen the findings made by the primary judge in the Full Court in relation to that, but this matter is to be considered objectively, in our respectful submission, not by reference to the subjective views or intentions of the parties, and there are also findings by the primary judge and the Full Court that there was an objective possibility as at February 2007, albeit a remote one, that a post‑inquiry extension of term might be sought and granted by Lundbeck.  That is part of the context of the agreement.

EDELMAN J:   Mr Dimitriadis, is the position this, that as at the date of the contract of the settlement agreement from the perspective of Lundbeck they were giving up - or on your argument they would have been giving up a very remote chance of something that could be very valuable and from the perspective of your client they were potentially exposing themselves, if the appellants’ argument is right, to a very remote chance of something that could have been a very large liability?

MR DIMITRIADIS:   Yes, your Honour.  That is a fair characterisation of the position as at February 2007.  Your Honours, it is very important to bear in mind in this discussion of the commercial context that the process of construction begins with the words of the agreement and ends with them and the ultimate task of the Court is to construe the words used.  The first point that we make is that the words of clause 3(1) of the settlement agreement are absolutely clear, in our respectful submission.  There is no end date.  None is provided for and on top of that the licence is described as being irrevocable, not capable ‑ ‑ ‑

KIEFEL CJ:   If they were absolutely clear, you probably would not be here.  They are not clear because of the requirement to understand what is involved in the subject matter which is the patent and the rights granted to the patent.

MR DIMITRIADIS:   Yes, your Honour, but we respectfully submit in relation to the patent that that term is clear.  It is defined in the agreement by reference to the letters patent, by the patent number, and that comprehends a licence which would grant a freedom or permission which would excuse Sandoz from any liability which might arise in relation to the patent pursuant to the provisions of the Patents Act.

KIEFEL CJ:   This is patent 114 or 144, I forget which, but which has at the time of the parties’ agreement had a term and only the term provided was due to ‑ ‑ ‑

MR DIMITRIADIS:   Yes, there was the term of the patent at the time of the agreement.  In fact, at the time of the agreement the term was due to expire on the later of the various dates which are mentioned in the clause, the 2014 date, because the original extension of term in relation to the Lexapro product was on foot.

KIEFEL CJ:   Quite so.  So the parties took account of the term of the original patent and the other terms which might arise if the patent was to have a later expiry date, but they did not account for what in fact occurred, in any language.

MR DIMITRIADIS:   Your Honour, our respectful submission is that the parties, objectively considering the language used, did account for that possibility by providing that the licence commence from a date and did not end on any date.  There is no provision for an end date and the licence is described as being irrevocable.  That wording, that language, objectively considered, does account for the possibility of there being a post‑expiry extension of term after the expiry of the patent on 13 June 2009.  That is how we submit that that clause should be understood objectively.

EDELMAN J:   Is your submission quite simply that the words “licence to the Patent” mean a freedom from liability for infringement of the subject matter of the patent whether or not subject to section 79 or for whatever term?

MR DIMITRIADIS:   Yes, your Honour.  There are no words that confine the licence or permission to any particular basis on which infringement might arise in relation to the patent.

KIEFEL CJ:   The appellants say that would be equivalent to saying that is a licence to the invention, not a licence which allows you to do that which would otherwise infringe the patent, namely, the statutory rights contained in the patent.  What do you say about the distinction they draw?

MR DIMITRIADIS:   Your Honour, we say there is no distinction.  The patent, pursuant to the Patents Act, confers exclusive rights on the patentee, the right to exclude others from exploiting the invention.  So a licence to a patent must be understood as the grant of a freedom or permission to do those acts.  There is no difference in substance between a licence to the patent and a licence to exploit the invention the subject of the patent because that is the nature of the rights that the patent conveys.

So we say there is nothing in our point – the point that our friends make in relation to that difference in language.  The source of the rights remain the same, the patent, and indeed the language of a “licence to the Patent” emphasises that without any qualification.

EDELMAN J:   You also have the heading, which is a “Licence to exploit the Patent which on any view must be a licence to exploit the invention as the subject of the patent.

MR DIMITRIADIS:   With respect, yes, your Honour.  So we say there is nothing in that particular point that our friends raise.  Understanding a licence to the patent as a licence to do the acts which would otherwise infringe the patentee’s statutory rights, which is a fair way of understanding what a licence to the patent is, that encompasses the statutory rights which arise under section 79 of the Act, just as it does encompass rights which arise under other provisions.

STEWARD J:   May I ask, if you are right and you received a licence with no end date, what is the point of the two weeks?

MR DIMITRIADIS:   Your Honour, the two weeks defined the start date of the licence, two weeks before one of the nominated expiry dates.  That is the purpose of it.  There is reference in the material, as your Honours have seen, to there being a two‑week early entry licence.  That is a reference to entering the markets two weeks before an expiry date of the patent.  But that says nothing…..is not inconsistent with the licence continuing after the expiry date of the patent.  There is nothing in the clause which provides that the licence or the permission or consent has any end date.  It simply commences from a date and is irrevocable.

GLEESON J:   Mr Dimitriadis, could your client have obtained the benefit that you are now identifying in relation to clause (3)(1)(a) if (b), (c) or (d) had operated?  In other words, was there any prospect of an extension of the patent if it expired on any of those later or other dates?

MR DIMITRIADIS:   I think the answer to that is no, your Honour, because the provisions of the Patents Act – and I think it is in section 70(4) - provide that there can only be one extension of term of a patent, and so the second or alternative extension of term based on the Cipramil product only became possible when the original extension of term based on Lexapro, which took it to 2014, was revoked.  So necessarily the expiry date of the patent in the case of a post‑expiry extension of term later being granted would be 13 June 2009 in paragraph (a).

KIEFEL CJ:   Mr Dimitriadis, do you accept that, I think as Mr Bannon put, that clause 3(1) talks about the ability of Sandoz to sell its products which would otherwise infringe the patent and clause 2 I think in the terms he used was to allow it to get ready to sell, to stockpile and prepare itself for sale?

MR DIMITRIADIS:   In general terms, yes, that is what clause 2 does.  Clause 1 is actually broader than just selling.  It is a licence to the patent which would comprehend any form of exploitation of the invention the subject of the patent, but it would include selling.

KIEFEL CJ:   Except that Sandoz does not do – it is a generic producer.  It produces and sells.  So it is not likely that the parties would have understood that it is going to exploit the invention, other than by selling its products, would they?

MR DIMITRIADIS:   That was the context, your Honour.  I accept that, but the grant of rights in clause 3(1) is not limited in its terms to selling, but that was the relevant ‑ ‑ ‑

KIEFEL CJ:   In fact, Sandoz is what it is, and it does what it does.

MR DIMITRIADIS:   Yes, your Honour, that is right, and clause 3(2) is directed at preparatory activities short of selling, to put it shortly.

KIEFEL CJ:   Mr Dimitriadis, while I have you interrupted still, I do not want to take you out of order though.  Are you going to deal with some of the background documentation which appears in the appellants’ book of further materials, in particular that letter, and say whether you regard that as relevant to the construction of the agreement?  But please do it in your own terms.  I just want you to address it at some point, the letter at page 30.

MR DIMITRIADIS:   Yes, I will do that, your Honour.

KIEFEL CJ:   Thank you.

MR DIMITRIADIS:   The short point that we make is that it is not relevant, but even if it is taken into account, it does not assist Lundbeck’s construction.  That is our short point in relation to that material.  Your Honours, may I come back to make a couple of other points by way of introduction in relation to the possibility of a post‑expiry extension of term arising, the first point being, as I submitted, that it needs to be considered as at February 2007, at which time it was objectively remote. 

A second relevant piece of context is that the party who had the power to seek an extension of term which might be granted post expiry and who had control over the timing of that was Lundbeck, not Sandoz.  Thirdly, considered as at February 2007, the grant of any such post‑expiry extension of term would first require a number of matters, including that Lundbeck seek and obtain an extension of time in which to make that application, which would be a lengthy extension, and that would not require Lundbeck to demonstrate a relevant error or omission on its part and the basis for a favourable exercise to support the extension ‑ again, matters in the knowledge and control of Lundbeck, not Sandoz.

Fourthly, and this is a point that has already been canvassed, the prospect of the retrospective action of section 79 in the event of a post‑expiry extension of term would create considerable uncertainty in the licence on Lundbeck’s construction of clause 3(1) and that is because, on Lundbeck’s construction of the clause, Sandoz was entitled to enter the market on 31 May 2009 in circumstances where the patent would expire on 13 June 2009 but would not know if a post-expiry extension of term was being sought, whether it might have to exit the market only two weeks later, given the possibility of that post‑expiry extension of term being granted, which might not occur for years into the future.

STEWARD J:   But, as I had put to Mr Bannon, is that not a risk that all generics face when a patent expires?

MR DIMITRIADIS:   Yes, your Honour, but in considering that, it is important to understand the full context of this agreement.  In this agreement, Sandoz gave up valuable rights which other generics retained – not having entered into the agreement – in particular its right to seek revocation of the patent.  That right – that is the right to seek revocation – would be a key plank in any defence to a claim by Lundbeck for infringement of the patent and, indeed, Sandoz had on foot such an application for revocation as at the time of the settlement agreement, as did some other generics.

So, Sandoz was not in the same position under this agreement as the other generics vis-à-vis the impact of a post‑expiry extension of term.  It was in fact on this note in a worse position, having given up its right to seek revocation of the patent on Lundbeck’s construction of the clause.  It would not have that defence available to it in the event of a post‑expiry extension of term.  So those matters of context are important, we respectfully submit.

EDELMAN J:   Mr Dimitriadis, do the second and third points of context that you raised that the matters that are within Lundbeck’s knowledge and not within Sandoz’s knowledge – does that not raise a question about the finding as to whether it was remote that an extension of time would be granted?  In other words, if the question of construction is one that is to be undertaken by reference to the knowledge that a reasonable person in the position of both of the parties would have, then the reasonable person would not know whether there was any likelihood of an error by Lundbeck at all.  So, the prospect is not merely remote; it is entirely speculative.

MR DIMITRIADIS:   Your Honour, while the primary judge and the Full Court of course found that the possibility was objectively remote – and I think the sense in which the remoteness was being put was that it was highly unlikely that this eventuality would occur – but it was objectively possible, Lundbeck undoubtedly had more knowledge than Sandoz did about matters relevant to the prospect of that actually arising.  But the primary judge’s assessment based on matters that were known to both parties – or reasonably available to them – was that it was possible but objectively remote.  We submit that that is consistent with the construction that we advance of the agreement which the Full Court upheld.

Now, your Honours, we do respectfully submit, as we put in our three‑page outline, that given the express terms of clause 3(1), the result contended for by Lundbeck does require the implication of a term into the clause providing for an end date or providing for a two‑week term of the licence where none is specified.  Our submission on that front is that the requirements for the implication of terms under…..are not satisfied in this case.

In short, whether one looks at it through the lens of the implication of terms or not, there is no reason why the parties should be taken to have agreed as at February 2007 that Sandoz should bear the risk of the objectively remote possibility of a post‑expiry extension of term arising.  Finally, I will say something in the course of my submissions about the extrinsic evidence which we submit does not assist Lundbeck’s case.

Your Honours, may I now go to the settlement agreement itself.  It is contained in the appellants’ book of further materials, if that is a convenient place for the Court to look, at tab 2.  This is the same bundle that Mr Bannon went to earlier on in going to some of the correspondence.

KIEFEL CJ:   What page is that, Mr Dimitriadis?  We do not have tabs.

MR DIMITRIADIS:   Thank you, your Honour, it is page 13.  That is the commencement of the settlement agreement, or at least the exhibit that contained it.  First, noting that it is a settlement agreement - not just a licence, but a settlement agreement; that is an important piece of context – may I go first to clause 3(l), which is at page 18 over to page 19.  We say, objectively considered, the language used in the clause and its meaning is clear.  There is a start date provided for by using the words “effective from”, but no end date for the licence.  The licence is described as being “irrevocable” in the preamble, and we submit those words are clear. 

I have made some submissions about the nature of the licence to the patent and how that is to be understood.  As Justice Edelman has pointed out, the heading refers to a “Licence to exploit the Patent”.  That is consistent with our submission that this was a licence conferring a permission or freedom on Sandoz to do acts which would otherwise infringe the patentee’s rights arising under the Patents Act, and that includes statutory rights that might arise under section 79 in respect of the period of a post‑expiry extension of term. 

We submit that the irrevocable nature of the licence is an important aspect of the wording when considered in conjunction with the fact that there is no provision for an end date of the licence.  The effect of Lundbeck’s construction of clause 3(1) can be considered in this way.  There being a licence granted to Sandoz from a particular date with no end date, if a post‑expiry extension of term was granted the effect of that would be to revoke or terminate the freedom of Sandoz to continue to sell its products because of the grant of the post‑expiry extension.

GAGELER J:   Mr Dimitriadis, is one way of putting your argument that when we look at the chapeau to clause 3(1) and we see the words “non‑exclusive licence”, we should also read in the word “perpetual”?

MR DIMITRIADIS:   Your Honour, the word “perpetual” is not used, but we submit the effect of the language used is the same because there is a start date but no end date, and in addition to that the licence is said to be irrevocable.  So it starts from a particular date and it cannot be terminated for any reason, which amounts to a licence.  We do not need to imply words to achieve that result, we respectfully submit.

STEWARD J:   Can I ask you a question?  On14 June 2009, did Sandoz need a licence in order to be able to freely manufacture this drug?

MR DIMITRIADIS:   There was no monopoly in force at that time, your Honour, because the patent had expired.  However, Lundbeck had on foot its application for a post‑expiry extension of term, and the provisions of section 79 were in the Patents Act, which meant that any act done on 14 June 2009 or later, could, in due course, attract liability for infringement of the patent if a post‑expiry extension of term was granted.  It is that freedom from that liability that we submit was, among other things, conferred by this license under clause 3(1).  Your Honours, reference has been made ‑ ‑ ‑ 

KIEFEL CJ:   Mr Dimitriadis, section 79 deals with the patentee’s right to commence proceedings. 

MR DIMITRIADIS:   Yes.

KIEFEL CJ:   It does not in terms say anything about infringement because it does not need to.  Infringement is dealt with elsewhere.  Section 79 simply gives the right to the patentee to bring proceedings where an extension is granted after the expiry of a patent.  So, you cannot really comprehend section 79 as something relating to a possible infringement of the patent to which the parties somehow turned their mind. 

MR DIMITRIADIS:   Your Honour, the way we put it is as follows.  Section 79 is the provision pursuant to which any action for an infringement of a patent in respect of the period covered by a post‑expiry extension is brought.  It confers the right to start that proceeding.  As the primary judge held and the Full Court agreed on this aspect, in making provision for such an action section 79 had the effect of enlarging or extending the patentee’s rights so that they covered the period of the gap between the expiry of the patent and the grant of the post‑expiry extension of term by implicitly deeming the acts that occurred during that period to have occurred after the grant of the post‑expiry extension of term. 

The effect of that is to enlarge or extend the patentee’s exclusive rights.  Now, it does not much matter for present purposes whether one regards those exclusive rights as arising by operation of section 79 or whether they arise by operation of section 13 which provides that the patentee has “exclusive rights, during the term of the patent”. 

It is clear that those exclusive rights arise and are infringed under the Patents Act in the event that there is an action brought under section 79 for acts that occur during the gap before the grant of a post‑expiry extension of term.  That is a form of liability in relation to the patent that may arise, and did arise in this case, under the provisions of the Patents Act, and that was the subject of the freedom or permission conferred by clause 3(1) of the settlement agreement.

Your Honours, if I could then address some other parts of, firstly, clause 3 and then the settlement agreement.  Clause 3(2), as your Honour the Chief Justice has observed, provides an additional licence.  It is described as being in addition to the licence under clause 3(1) and it, in short, provides a licence which enabled Sandoz to make preparations to enter the market by way of stockpiling, offering to sell, but not selling.  That licence is also described as being effective from a particular date, being the beginning of the calendar month in which the clause 3(1) licence becomes effective.

We make two points in relation to clause 3(2) really by way of context that assist the understanding of clause 3(1).  But first, the reference in clause 3(2) to the clause 3(1) licence is to the clause 3(1) licence becoming effective.  There is no suggestion there that there is any end date for the clause 3(1) licence.

Secondly, the nature of the licence in clause 3(2) is consistent with the proposition that the purpose of the licence in clause 3(1), objectively considered, is to allow Sandoz to enter the market and to remain in it, not to have to leave the market after two weeks to avoid infringement against the prospect of a post‑expiry extension of term being granted.  That is because clause 3(2) confers a right to undertake preparations to enter the market over a period of up to a month.  We also note, your Honours, that clause 3(3) states:

For the avoidance of doubt, nothing in this Agreement is to be taken as granting a licence of, or authorisation to exploit, any patent other than the Patent.

We say that objectively considered, the inclusion of that provision in clause 3 suggests that, where it was intended that no licence or right or freedom or permission would be granted, the clause would clearly state that to be the case and there is no provision in relation to an end date in clause 3(1).

STEWARD J:   Could I ask, given that on your case the licence in (2) is also perpetual and, given the phraseology that (2) is in addition to (1), how are these two licences, which co‑exist into the future, to be reconciled as one against the other, given that (1) is not an addition to (2) but (2) is an addition to one?

MR DIMITRIADIS:   Yes, your Honour.  We submit it is clear when one understands what is being conveyed by these two licences or conferred, what permission is being conferred.  Although it is described as being an addition to clause 3(1), it is clear that the licence in clause 3(2) becomes effective first.  That is clear from the wording.

It is additional in the sense that it is an ancillary licence in the nature of a licence that would allow preparations to be made to engage in the full scope of activity that is permitted by clause 3(1), including selling.  That is how the word “addition” can be understood. 

It is true that, on the language of the agreement, both licenses become effective and there is no provision for any end date.  There does not need to be.  The permission or freedom continues.  Of course, as a practical matter, once the licence under clause 3(1) becomes effective, it subsumes or perhaps - it subsumes the licence under clause 3(2) or, put another way, the licence in clause 3(2) is merged into 3(1) and is not of any significance from that point on because the full scope of activity is permitted by clause 3(1).  That is the way in which the drafting has been presented.  We say there is no difficulty or ambiguity that arises out of that. 

Your Honours, we say that the construction adopted by the Full Court is confirmed by the context of the agreement as a whole and, your Honours, here, just to indicate where I am going, I have dealt with paragraph 1 of our three‑page outline, and I am now moving to paragraph 2. 

Objectively considered the object of the agreement was to achieve a settlement and, we submit, a comprehensive settlement of all current and future disputes between Sandoz and Lundbeck relating to the proceedings between them.  We can see from clause 1, which is at page 17 of the appellants’ further materials, that Sandoz granted releases and undertook obligations in favour of Lundbeck and those obligations or this aspect of the agreement included Sandoz giving up its right to seek revocation of the patent.  That we can see in clause 1(b).  So, Sandoz gave up that valuable right which would be a key plank in any defence to a future action by Lundbeck seeking to enforce the patent.  That forms an important part of the context of this agreement.

We say that is consistent with the proposition that was recognised by the Full Court that objectively ascertained the intention of the parties that was apparent from this agreement was that Sandoz would be free to exploit its products in the circumstances provided for in clause 3(1) and to continue doing so without fear of infringement or any future claim being brought by Lundbeck based on the patent.

EDELMAN J:   Mr Dimitriadis, what do you say about the appellants’ submission that the release in clause 1 had very little significance to Lundbeck in circumstances where the other generics had not granted releases?

MR DIMITRIADIS:   Your Honour, it had value to Lundbeck clearly to have one of the generics give up its right to take action and seek revocation for the patent.  One does not know precisely what was occurring as between Lundbeck and the other generics at the time of the settlement agreement, but it cannot be said that this was not a valuable right that Lundbeck obtained - or a valuable result that Lundbeck obtained through…..release. 

A point that we emphasise, your Honour, is that this was a right that was very valuable to Sandoz, which Sandoz gave up as part of this settlement, and that needs to be considered in conjunction with the grant of the licence in clause 3(1).  Your Honours, that is what we say about clause 1. 

Perhaps I can make this additional point - this is referring to matters that subsequently occurred but in fact, as we can see from the primary judge’s reasons, Lundbeck ultimately did kick off and settle with the other generics one by one, much later in the course of the proceedings, so that is something that plainly was at least objectively a possibility as at February 2007.

Your Honours, clause 2 of the agreement contains releases by and obligations of Sandoz, and Lundbeck released Sandoz from claims, actions, et cetera, relating to the proceeding, and agreed not to commence such actions in the future.  That is consistent with the proposition that this agreement was a comprehensive settlement between the parties, intended to settle all matters between them relating to the proceedings that were between them. 

It is consistent, in our submission, as is clause 1, with the proposition that clause 3(1) is not to be understood as providing only for a two‑week licence, a limited two‑week licence, which would expose Sandoz to the prospect of liability for infringement in the event of a post‑expiry extension of term.

Your Honours, at that point, may I go to two paragraphs of the Full Court’s reasons which we submit, respectfully, aptly summarise the position as to the objective construction of clause 3(1).  These are firstly paragraph 67, which is in the Full Court’s reasons at page 264 of the common appeal book, at tab 10, where the Full Court said:

In our opinion the language of cl 3 is relatively clear.  It grants to Sandoz an irrevocable non‑exclusive licence from 31 May 2009 if the Patent expires on 13 June 2009.  Subject to that condition being fulfilled, the licence under cl 3(1) is effective from 31 May 2009 and is irrevocable.  The licence was not contingent on there being no extension of term granted after the Patent expired.  The parties’ intention, objectively ascertained, was to stipulate a start date for the licence, but without any end date.

We respectfully submit that reasoning was correct.  Then in paragraph ‑ ‑ ‑ 

GLEESON J:   Mr Dimitriadis, can I make sure I understand, but in any other case, apart from the expiry on 13 June 2009, the licence would only be for two weeks?

MR DIMITRIADIS:   No, your Honour.  It would be a licence that had a start date and no end date.

GLEESON J:   But it would only have a meaningful commercial benefit for your client of two weeks, except in the circumstance that the term of the patent expired on 13 June 2009.

MR DIMITRIADIS:   That is so in the sense that in the other scenarios the term of the patent would expire two weeks after the commencement of the licence and there would be no further grant of a term in relation to the patent by way of an extension of term.  That is true, but nevertheless in all of those cases the effect of clause 3(1), in our submission, was to confer on Sandoz a licence which would enable it to commence selling its products from a particular date, safe in the knowledge that it would not be exposed to any liability for infringement of the patent, whether that be in relation to the initial of that two‑week period or any later period, and that it could continue to sell its products on that basis.  It is consistent with that that Sandoz gave up its right to seek revocation of the patent, which would have been at least a key plank in its defence to any claim for infringement of the patent.

Your Honours, then paragraph 69 of the Full Court’s reasons we also submit is a correct statement of the position.  On its proper construction, clause 3 provided Sandoz with the opportunity to prepare to enter the market from 1 May 2009 and to commence selling product from 31 May 2009 without risk of liability for patent infringement if the patent expired on 13 June 2009. 

It conferred on Sandoz the right to enter the market on 31 May 2009 in circumstances where, provided the patent expired on 13 June 2009, it would not need to concern itself with what was, in February 2007, the remote possibility that the term of the patent might be extended some time after it had expired.  That is an…..we would respectfully submit correct summary of the objective effect of clause 3 (1) of the agreement.

KIEFEL CJ:   I notice the time, Mr Dimitriadis.

MR DIMITRIADIS:   I am sorry, your Honour.  Yes, that is convenient.

KIEFEL CJ:   The Court will adjourn until 2.15 pm.

AT 12.47 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.15 PM:

KIEFEL CJ:   Yes, Mr Dimitriadis.

MR DIMITRIADIS:   Thank you, your Honour.  Your Honours, before the lunch break, I had addressed points 1 and 2 in our three‑page outline.  I will be able to move more quickly now because I have covered a number of the matters that arise under some of the later points.  At this point before I leave point 2, may I make one submission by way of summary on the terms of the settlement agreement. 

If your Honours would not mind going back to that which is in the appellants’ book of further materials at tab 2, page 13, and this is really by way of drawing together the threads that we put in relation to the terms of the agreement.  The key points are that firstly it is a settlement agreement, which we see from the whole of the context, including its title, and the recitals. 

Secondly, as I have submitted, in clause 1(b), Sandoz, gave up, among other things, its right to seek revocation of the patent.  In exchange for that, in clause 3(1) relevantly, we see the licence which was granted by Lundbeck and Lundbeck Australia to Sandoz, and it is described in the terms that I put to your Honours - irrevocable and from a particular date, depending on the date of expiry of the patent. 

Now, I addressed before lunch the nature of the licence, including the significance of the words “to the Patent”.  One way in which it was put which we submit is a fair and reasonable way to put it, is that the licence to the patent is a permission to do acts which would otherwise infringe the patentee’s statutory rights - that is one characterisation - or, to the same effect, the licence to the patent can be understood as a freedom conferred on Sandoz from having the patent enforced against it. 

Those are two ways of saying the same thing.  I made the submission that, because of the definition of the patent, and in the absence of any qualifying words, that is to be understood as a freedom in relation to all of the patentee’s statutory rights arising under the Act, based on the patent, whether in reliance on section 79 or otherwise.

We do respectfully submit, looking at the provisions I pointed to, and focusing on the wording of clause 3(1), if one is to ask this question, would a reasonable business person possessed of the background knowledge as to objective matters that was available to the parties, including knowledge of the provisions of the Act, understand that if the patent expired on 13 June 2009 – so subparagraph (a) applied – Lundbeck could enforce the patent against Sandoz in respect of acts occurring during any period after 31 May 2009.

We respectfully submit that the answer to that question must be no, on the plain language use in the clause which does not specify any end date and provides that the licence is irrevocable – taking into account, as I submitted, that Sandoz gave up its right to seek revocation of the patent, which would be a defence to any claim asserting a patent by Lundbeck.

Next, your Honours, can I move on to paragraph 3 in our three‑page outline, which we called “The surrounding circumstances”.  I have largely addressed this in the submissions that I have made already so I will not spend much time on it, but can I make this point?  The basis for the primary judge’s holding, which was accepted by the Full Court, that there was an objectively remote possibility of a post‑expiry extension of term arising was her Honour’s finding in paragraph 260 that the provisions of the Patents Act form part of the background knowledge of objective matters that was available to the parties in the situation they were in at the time of the agreement. 

That was the foundation for the finding that there was an objective possibility, albeit a remote one, that a post‑expiry extension of term could be granted - the relevant background facts, other provisions of the Act, that would enable that to occur.  We have given your Honours some references to that in paragraph 3 of our three‑page outline.

In paragraph 4 of our three-page outline, we have addressed the topic of the “Nature of the licence”…..made submissions about - just now, so this morning – so I will not spend more time on that either.

GAGELER J:   Mr Dimitriadis, may I just ask a question about the operation of section 79?  It may…..raise a question about the operation of section 76, I just do not know, but is there any settled understanding of the legal effect of the grant of an extension that occurs after the expiration of a patent?  Is there a retrospective grant of rights in rem back to the date of expiration or, is there – like there would be if it was a lease – a new grant going forward leaving whatever rights that may have occurred in the interim as accrued? 

Section 79 on one reading suggests the latter, and section 79 fills the gap – arguably whether it is comprehensive or not in filling in the gap would be a question – but that seems to be the way it is constructed.  But that is just an impression.

MR DIMITRIADIS:   Your Honour, I think it is fair to say that this case is the case which has considered the effect of section 79.  I do not think it can be said that there is a settled view as to its construction or effect, save from whatever might emerge from this case.  The Full Court of course dealt with that matter. 

We submit of the two possibilities that your Honour put forward, it is the latter that applies.  I will come to this in the course of dealing with the section 79 exclusive licensee point in a short while, but your Honours have seen what it provides for.  It provides that, subject to certain conditions being fulfilled, including that there be a grant of a post‑expiry extension of term:

the patentee has, after the extension is granted, the same rights to start proceedings in respect of the doing of an act during the period –

which is the gap period, if I can call it that:

as if the extension had been granted at the time when the act was done.

So it is in the nature of a deeming provision which creates a right of action for the patentee to sue in respect of acts that occurred during the gap period where it would not otherwise have that right.  That is the effect of section 79, we would submit.  Then, your Honours, just to address paragraph 4 of our three‑page outline, as I indicated I have made most of the points that we address under that topic already.  We do emphasise that it is important to understand that the licence is in the nature of a permission or freedom.

EDELMAN J:   Mr Dimitriadis, can I just understand how that submission fits with your submission that the nature of the rights conferred by the patent were in some respect contingent or could give rise to future contingent rights.  If the legal effect of section 79 is properly characterised as a new grant, then there is no contingency, is there?

MR DIMITRIADIS:   Well, there is contingency in the sense that there is the potential for those rights to arise by reason of the existence of section 79 if the conditions set out in section 79 are fulfilled.  That is what we mean by the section 79 rights being contingent.  They do not come into effect unless and until a post‑expiry extension of term is granted.  But they do exist.  They arise in a contingent sense upon the grant of a patent in the sense that a patent of this type, a pharmaceutical patent, has the potential to be the subject of a post‑expiry extension of term.  That is in effect how the primary judge characterised section 79 in her reasons on the section 79 exclusive licensee issue.

Just to clarify, your Honours, we do not say it is a new grant of a patent, it is not a new grant of a patent.  It is the grant of an extension of term in relation to the same patent, the patent that exists, but where there is a post‑expiry extension of term that is granted then the rights that section 79 provides for become effective in relation to that patent and enable the patentee to take action for infringement in respect of acts that occurred during the gap period before the grant of the post‑expiry extension.

The key point for the purposes of the settlement agreement is that those rights, however one characterises them, are rights that arise under the Patents Act and they arise in favour of the patentee by virtue of its status as the patentee of the patent, and despite their contingent character at the time of the grant of a patent and the entry into the settlement agreement they were capable of being the subject of a permission or freedom to do acts which might otherwise give rise to liability because of those rights under section 79.

We emphasise, of course, that on the conclusion or the expiry of the 20‑year term of the patent on 13 June 2009, the patent did not cease to exist.  It did not become a nullity, it was not at an end.  Lundbeck remained the patentee of the patent under the Patents Act and the patent remained on the register under the Patents Act.  Indeed, at that time it was the subject of Lundbeck’s application for the post‑expiry extension of term.

So although the term of the patent at that particular point in time had expired, the patent had expired in accordance with clause 3(1)(a), the patent still existed, still had subject matter, which could give rise to an ability on the part of Lundbeck to enforce the patent in future if the conditions in section 79 were satisfied, as they ultimately were.

KIEFEL CJ:   Is that right to say it, at that point in time, gave rise to the ability for the patentee to sue in the future?  Why was it no more than a piece of paper and something noted on the register once the term had expired?

MR DIMITRIADIS:   Well, the patentee is the person who has the right to apply for an extension of term and Lundbeck had done that.

KIEFEL CJ:   But until the extension is given the patent cannot be acted upon.  The rights under the patent cannot be acted upon.

MR DIMITRIADIS:   The patent cannot be enforced by way of an action for infringement.

KIEFEL CJ:   That is because there is nothing to enforce.

MR DIMITRIADIS:   It cannot be enforced but it could be able to be enforced in future if the conditions in section 79 are satisfied.

KIEFEL CJ:   But at the point in time it is just – it is subject to the patentee doing things, but at the point in time there is nothing to enforce, is there ‑ ‑ ‑

MR DIMITRIADIS:   Immediately after 13 June 2009, prior to the grant of the post‑expiry extension of term, that is correct, your Honour.  Lundbeck was not able to enforce the patent at that time, but it had rights under the Patents Act, including at that time rights relating to its pending application for a post‑expiry extension of term which it was pursuing, which if that extension was ultimately granted would give it the right to sue retrospectively in respect of acts that did occur during that period immediately after 13 June 2009.

It is those rights, whether one calls them contingent rights, rights that may arise on the part of the patentee if conditions are satisfied, they are capable, we respectfully submit, and were capable of being the subject of a permission or consent by Lundbeck.  Lundbeck was at liberty to and we submit did agree with Sandoz that Sandoz would have a freedom to engage in acts which, if a post-expiry extension of term was ultimately granted, would infringe Lundbeck’s rights that it would have…..section 79.

KIEFEL CJ:   If one were to express directly what you have said, a grant of Lundbeck’s rights under section 79, what words would you use to clearly convey it?

MR DIMITRIADIS:   Your Honour, the formulation we have used is that based on the primary judge’s reasoning, which is to say that the rights under section 79 are contingent in the sense that they had not come into effect at that time, but they may ‑ ‑ ‑

KIEFEL CJ:   So if one were expressing a grant of those rights, it would be something to the effect of “Lundbeck conveys whatever rights may arise in the future with respect to any extension of the term of the patent”.

MR DIMITRIADIS:   If your Honour is referring to the licence as being a grant of those rights, that is not the way we characterise it.

KIEFEL CJ:   No, I am not looking at clause 3.  I am saying, if one were more clearly and directly dealing with what you call the section 79 patentee’s rights being subject of a grant to a third party, how would you express the grant?

MR DIMITRIADIS:   Your Honour, we do not submit that a licence involves a grant of those rights to a third party.  That is not the way we put it.  We submit that a licence for the period that would be covered by section 79 – that is, after the expiry of the original term – is the conferral of a freedom or a commission on a third party to engage in acts which would give rise to liability if those rights under section 79 came into effect in Lundbeck’s favour.

KIEFEL CJ:   So, in effect, a licence for an indeterminate term simply picks up whatever occurs in the future?

MR DIMITRIADIS:   It does, your Honour, because it was a licence without an end date in relation to the patent which we respectfully submit naturally comprehended a freedom to engage in acts that would or might otherwise infringe any of the patentee statutory rights associated with the patent.

GLEESON J:   Mr Dimitriadis, the right in section 79 is not a right that the patentee has by virtue of the patent, is it?  It is a right that the patentee has by virtue of their status as patentee within the meaning of the Act?

MR DIMITRIADIS:   That is certainly a requirement.  They must be the patentee but what section 79 provides is that, if the preconditions are satisfied, the patentee has the same rights to start proceedings in respect of the doing of an act by someone else in respect of the relevant period as if the extension had been granted at the time when the act was done.  Those same rights are the rights, in our submission, conferred by section 120.  That is what the reference to the same rights to start proceedings in respect of the doing of an act means.

EDELMAN J:   Mr Dimitriadis, perhaps if I could ask it this way?  If the patentee wanted to grant an equitable assignment of the benefit of the patent, after the expiry of the term of the patent, would that grant of an equitable assignment of the patent carry with it the benefit of the rights under section 79? 

MR DIMITRIADIS:   Yes, your Honour.  We would submit it would.

KIEFEL CJ:   What would it be an equitable assignment of?

MR DIMITRIADIS:   Well, the benefit of such statutory rights as would be associated with the patent.

KIEFEL CJ:   Future rights, you mean, because there would not be any current rights?

MR DIMITRIADIS:   Not rights which enable the patentee to take action at that time, no.  I am sorry, it would of course be that rights I adverted to earlier that are present rights which would be the patentee’s rights to progress and have its application for the post‑expiry extension of term determined.  So those were rights that Lundbeck actually had at the time of the expiry of the 20‑year term, because the application for the post‑expiry extension of term was on foot.

STEWARD J:   Why do you call them future rights or contingent rights?  Why are they not just a mere expectancy, like the payment of future dividends, in Norman’s Case? 

MR DIMITRIADIS:   Your Honour, we used the language of contingent rights because that was the language used by the primary judge, which seemed to us to be a convenient way of describing them because they do not have effect at the time that is being considered but they are something that comes into effect later, after the grant of a post‑expiry extension of term.  But for the present purposes your Honour, we respectfully submit that it does not matter precisely how one characterises the nature of what is conferred by section 79 because of the nature of a licence – a licence through the patent ‑ ‑ ‑

STEWARD J:   It might matter for your assignment point, though.  You would not be able to ‑ ‑ ‑ 

MR DIMITRIADIS:   Sorry, yes, it might impact on that, your Honour, but for the point relevant to the construction of the licence agreement, clause 3(1),it does not matter, in our respectful submission, because all the licence is, is a permission for consent to engage in acts that would or might otherwise attract some form of liability.  For that purpose, it does not matter precisely how one characterises the nature of the rights that arise under section 79, in our respectful submission. 

Your Honours, I was dealing with paragraph 4 of our three‑page outline which I think I have addressed sufficiently for present purposes.  We have given your Honours a reference to some cases, including Banks v Transport Regulation Board which goes to the nature of a licence as being a permission or a freedom to do an act that might otherwise be unlawful.

Could I go to the next point, which is point 5, where we deal with the question of implication of terms, and we address this in some detail in our written submissions so I will not spend a great deal of time on it orally.  We do respectfully submit that having regard to the words of clause 3(1) the result for which Lundbeck contends requires that there be a term implied into clause 3(1) which would provide for an end date for the licence or, alternatively, provide that the licence is a two‑week licence rather than a licence that commences on a particular date and has no end date and is irrevocable.

The short point here, your Honours, is that the well‑established conditions for the implication of terms are not satisfied.  Your Honours are very familiar with the five conditions laid out in BP Refinery.  In our respectful submission, for the reasons given in our written submissions, none of those requirements would be satisfied and, certainly it cannot be said that all of them would be satisfied by the term that would need to be implied in this case.

The uncertainty that I referred to before lunch on the part of Sandoz in relation to the operation of the licence would be significant when regard is had to the way in which the licence, on Lundbeck’s construction, would operate on Sandoz should the patent expire in circumstances where an application by Lundbeck for a post‑expiry extension of term was unresolved.

Sandoz would not know for some undefined period of time after the start of the licence whether it would infringe the patent by staying in the market after the expiry with the two weeks.  That would undermine the utility of the licence from Sandoz’s perspective.  We submit it would not be reasonable and equitable.  It certainly would not be so obvious that it goes without saying or necessary to give business efficacy to the contract.

Importantly, your Honours, in relation to the fourth requirement in BP Refinery, for the reasons I have just submitted the operation of the clause in those circumstances would be uncertain, which would be a further reason why it would not be implied that there was an end date or that the licence was only for a two‑week period.  Finally, it would conflict with the express terms of the clause, in our respectful submission, which does not provide for an end date and describes the licence as commencing from a date and being irrevocable.

Your Honours, the next point in our written submissions we have called “Allocation of risk” where we have collected together some matters relevant to that question - how should the court understand that the parties agreed the risk of a post‑expiry extension of term should be borne objectively considered.  We have addressed some matters in relation to that which I have covered in one form or another.  We would also add to what we have said in paragraph 6 that importantly, as I have submitted, Sandoz gave up its right to seek revocation of the patent as part of this settlement.

Can I then move to the extrinsic evidence, and this is a matter that the Chief Justice indicated that I should deal with, which I will.  We deal with this in paragraph 7 of our note.  Several categories of extrinsic evidence have been referred to in the submissions and our short point is that they are irrelevant, but to the extent that they are considered they do not assist Lundbeck.

It is, of course, necessary to bear in mind the principles that apply in this area relevant to what use might be made of extrinsic evidence going to matters outside the contract.  Evidence of the surrounding circumstances is restricted to objective matters, as is well established, of certain kinds.  Evidence as to the parties’ subjective intentions or expectations is not relevant or admissible on the issue of construction. 

It is also important to have regard to the fact that it is at the date of the contract that extrinsic material should be directed.  It is the objective circumstances, the surrounding circumstances as at that date which may be taken into account, not as at some future date.  So evidence of matters occurring subsequently will generally not be relevant unless it somehow sheds light on objective matters that existed as at the date of the contract.

The first category of extrinsic evidence that is relied on by Lundbeck includes the correspondence that Mr Bannon went to this morning.  There are a few pieces of it.  The example that Mr Bannon went to was at page 30 of the appellant’s further materials, which is part of an email chain in 2007 between Lundbeck and Sandoz.  Dealing with that at a general level – and this applies to the other examples referred to in his written submissions as well – that correspondence refers to a two‑weeks early entry, or a two‑weeks early entry licence, and the contention by Lundbeck, as we understand it, is that that is some evidence that what was intended was a licence of two weeks’ duration before the expiry of the patent.

We submit that that is misplaced.  The first reason is that we do respectfully contend that this material is, in substance, evidence of what was the actual intention or expectation of the parties - that is really what Lundbeck is seeking to do here by relying on it.  It represents negotiations about the terms of the agreement that ultimately were merged into the wording of the agreement itself and it is not relevant.

The second point that we make is that in any event if one has regard to this material it does not assist Lundbeck’s case and that is because the reference is not to a two‑week licence or a licence of two weeks’ duration but rather a two‑weeks early entry licence.  On its face, we say that refers to entry into a market two weeks early, that is, two weeks before the expiry of the patent when other generics could be expected to enter the market and it is not a reference to a licence of two weeks’ duration which is how Lundbeck seeks to characterise it.  Indeed, this correspondence – and in particular another example of it which appears at page 33 ‑ ‑ ‑

KIEFEL CJ:   Mr Dimitriadis, if I could interrupt you, could this be evidence not so much of the negotiations of the parties but as to the parties - as background as to the parties’ understanding of what is of commercial value?

MR DIMITRIADIS:   It could be for that purpose, I accept that, your Honour, but it is not relevant as evidence of what they understood the provision in clause 3(1) to mean.  In addition, your Honour, when one has regard to this correspondence, if one is going to look at it, it makes it very clear that not only was the licence being described as a two‑weeks early entry – not two weeks’ duration – there is also discussion of the desire on the part of Sandoz to have a period prior to those two weeks in which to take preparatory actions in the nature of stockpiling and the like for the purposes of entering the market.

That is consistent with our proposition that two weeks early entry does not mean two‑week participation in the market, it means being able to enter the market two weeks before expiry and to stay in it, and that is how we submit that this correspondence, if it is to be taken into account, should be understood.

Just to make that second point good, your Honours, it is at page 33 of the appellants’ further material where there is a further email.  This one is from Mr Sharkey to Mr Maritz ‑ Mr Sharkey of Sandoz to Mr Maritz of Lundbeck.  Your Honours will see in the middle of the page there is a paragraph after the bullet points that refers to the additional licence in short which was ultimately the subject of clause 3(2), described as being in relation to the early entry licence but also including stockpiling and offering for sale prior to that period.

We note here in this piece of correspondence, again the licence is described as an “early entry licence”, not a licence of a limited duration.  It is described as being “from” a particular date, “from 2 to 4 weeks prior to the expiry of the patent”, and there is no suggestion in this correspondence that Sandoz may be placed in the position of having to exit the market two weeks after entering it against the prospect that Lundbeck might obtain a post‑expiry extension of term.

Stepping back, your Honours, we respectfully submit in relation to the terms of the settlement agreement, as well as this correspondence, it is instructive to ask this question.  Assuming the parties did not in fact turn their mind to the question of whether an end date should be specified so as to confine the licence to a two‑week period, had they turned their mind to that question against the background knowledge that there was an objective possibility that Lundbeck might obtain a post‑expiry extension of term, would they have agreed to specify an end date?  We submit that it cannot be said that they would, and certainly cannot be said that Sandoz would have made that agreement ‑ ‑ ‑

STEWARD J:   Does not use of the word “entry” suggest that the parties are acting under a common assumption that Sandoz would enter the market as a generic manufacturer upon expiry of the licence?

MR DIMITRIADIS:   Your Honour, it reflects an understanding that Sandoz was going to enter the market two weeks prior to the expiry of the patent but entailed within that is an understanding or an assumption, in our submission, that Sandoz would be able to stay in the market after that period, and that the terms of the settlement agreement would not preclude that or would not expose Sandoz to liability in respect of that later period.

An important matter relevant to that, your Honour, as I have already submitted, is that Sandoz had given up in this settlement agreement its right to seek revocation of the patent, which is something that other generic suppliers had not done.  They would have been free to seek revocation of the patent if they wished to do so in response to an assertion by Lundbeck of the patent.  So, your Honours, we submit that that correspondence does not assist and certainly does not assist in Lundbeck’s case.

Your Honours, the second category of extrinsic material which has been relied on by Lundbeck relates to the drafts of the settlement agreement where, as your Honours know, there was a change in drafting from the licence in clause 3(1) being to exploit the invention the subject of the patent to the wording that was ultimately used which is a licence to the patent.  For the reasons I have already submitted, we say that does not make any difference.

The source of the rights in each case is the same, it is the patent, and a patent gives the patentee the exclusive right to exploit the invention ‑ in other words, a right to exclude others from doing so.  That is the nature of the activity that is permitted by a licence, being a permission or a freedom, in relation to the patent, whether it is described as a licence to exploit the invention or just a licence to the patent does not make any difference on our respectful submission.  The source of the potential unlawfulness or liability in each case which is the subject of the licence is the same.

Also, we would submit respectfully, that correspondence, that is correspondence about the drafting of terms of the agreement, does not come within any basis on which extrinsic evidence can be received and used.  It goes to the parties’ negotiations about the terms that were ultimately agreed in the form that they were.

Mr Bannon relied on the notorious Codelfa exception.  We would submit that does not apply here.  This is not a case of the parties rejecting a term and not including it, which is the example that Justice Mason focused on.  This is a part of the detailed drafting of the term that was ultimately included and changes in wording relating to that term, and if the exception was as broad as Mr Bannon needs to put it, then any evidence of the drafting of terms and negotiation about terms of an agreement would become admissible and, we respectfully submit, that is not the position.

Your Honours, finally, there is a third category of extrinsic materials, extrinsic evidence, which is relied on by Lundbeck which includes some 2009 documents, internal documents, of Sandoz.  These were dealt with by the Full Court in its reasons – or one of them was.  The primary judge did not take them into account.  We submit they are wholly irrelevant, they relate to Sandoz’s own subjective thinking, or views, expressed internally, not communicated to Lundbeck, and they occurred two years after the entry into the settlement agreement.  So that material is just not relevant for the reasons we have outlined in our written submissions.

Lastly, your Honours, can I go to point 8 on this topic in our three‑page outline where we deal with the decisions below, the decision of the primary judge and the decision of the Full Court.  We have addressed this in more detail in our written submissions what we say about their Honours’ reasoning.

May I make some general points because of the time.  The primary judge correctly held that subparagraph (a) applied because the patent expired on 13 June 2009 such that the licence under clause 3(1) commenced on 31 May 2009.  As far as that went, that was correct, we respectfully submit, and the Full Court agreed with her Honour.

We submit her Honour erred in holding that the licence having commenced on 31 May 2009 then ended, or terminated, on 13 June 2009 with the expiry of the patent.  The basis on which her Honour made that finding was to construe – and we respectfully submit in fact it was reading down – the term “the patent” so that it referred only to the patent before it…..and our friends, as we apprehend it, make a similar submission in relation to the way in which the reference to the patent should be understood.

We say that process of reasoning from her Honour which appears in paragraph 296 and 298 in particular, which I will not go to because of the time, should not be accepted.  It had the same effect, in our respectful submission, as implying a term for an end date or implying that the licence was for only a two‑week period when that is not what clause 3(1) says.  It was also based on an a priori assumption that the parties had agreed that the licence was for two weeks.  That is the effect of her Honour’s reasoning in paragraph 296.  That is not something that is clear and more apparent in any way, we respectfully submit, from clause 3(1), which does not provide for any end date and describes the licence as being irrevocable.

In relation to the Full Court’s reasons, I have taken your Honours to some paragraphs of their Honours’ judgment.  We respectfully submit their construction was correct and should be upheld.  Their Honours explained at paragraphs 55 and following why the primary judge was incorrect to read down the reference to the patent in the way that her Honour did, having regard to the terms listed in clause 3(1) and in the settlement agreement and, relevantly, at paragraph 56, which is at page 260 in the joint core appeal book, the Full Court said:

The Patent that was the subject of the extension of term –

that was later granted:

was the same Patent that expired on 13 June 2009.  Sandoz either had a licence under the Patent or it did not –

and there was no:

basis for concluding that the licence would not provide Sandoz with a defence to a claim for infringement of the Patent founded on s 79 of the Act.

That is consistent with our submission which I have already advanced to your Honours.  So, for all of those reasons we submit that the Full Court’s construction of the settlement agreement should be upheld and that their Honours were correct to conclude that it provided a complete defence to Lundbeck’s claim against Sandoz.

Now, your Honours, may I move on to the next issue which is the exclusive licensee issue under section – and the interaction with section 79 of the Act.  This is in paragraph 9 of our three‑page outline.  The question raised by this issue, which is part of Lundbeck’s appeal, is whether the exclusive licensee, here Lundbeck Australia, has a right to start proceedings in respect of acts occurring during the period covered by section 79, so after the expiry of the patent but before the grant of a post‑expiry extension of term.

The short point is that section 79 – and your Honours have seen the wording of the provision – does not confer any right to start proceedings on the exclusive licensee.  Your Honours, a convenient place to see the wording of section 79 is in paragraph 17 of the Full Court’s reasons at page 250 of the joint core appeal book.  It is also contained in the legislative material, of course. 

In short, it provides that if a post‑expiry extension of term is granted, the patentee has the same rights to start proceedings in respect of the doing of an act in the intervening period as if the extension had been granted when the act was done.  Those rights are expressly conferred on the patentee by the wording of section 79.  There is no conferral of a right to start proceedings on the exclusive licensee or any other person.

That can be contrasted with section 120 and your Honours can find the wording of that provision in paragraph 87 of the Full Court’s reasons which starts on page 271 of the joint core appeal book.  It is also in the legislative materials.  Section 120, in contrast to section 79, confers a right to start proceedings in respect of the doing of acts while the patent is actually on foot in favour of the patentee and any exclusive licensee.  Your Honours can see that in section 120(1).

We say the contrast in language between those two provisions is significant and in considering that difference it is relevant to bear in mind the nature of section 79.  It is a provision which confers what we would say are exceptional rights of action, being rights which arise and are effective only after a post‑expiry extension of term is granted.  It renders actionable retrospectively, if that circumstance arose, acts that took place during the period between the expiry of the patent and the grant of the extension.

It is very clear, we respectfully submit, as the Full Court held, that it is only section 79 which confers a right on the patentee, in the circumstances of this case, to take action in respect of acts that occurred during that period, the gap period, because, in fact, the patent was not in force.  Its term was not in effect at the time when the acts were actually done.

STEWARD J:   Can I ask, are you able to identify some policy reason for why Parliament might have wanted to confer these exceptional rights on a patentee but not exclusive licensee?

MR DIMITRIADIS:   Yes, your Honour, and the Full Court addresses this, in our submission, in particular at paragraph 109.  The Full Court says something about possible reasons of policy as to why the Parliament may have chosen to do that.  The one that we would emphasise, your Honour, is that it is only the patentee who has the right to apply for an extension of term.  That is under section 70 and it is reflected in section 79 which refers to the patentee applying for an extension of term.

As the Full Court observed in paragraphs 109 through to 110, it is possible that the legislature was concerned to avoid the possibility of an exclusive licensee asserting a right to start proceedings for an infringement contingent on an extension being granted in circumstances where only the patentee has the right to apply for an extension of term.  That is one possible policy reason that the Full Court identified.

Our submission is that the language of the provision is clear.  It does not refer to exclusive licensee.  It does not confer any right to start proceedings on an exclusive licensee.  That is not an anomalous result or an absurd result, particularly taking into account the exceptional nature of the rights under section 79 as well as the policy consideration, or potential policy consideration that I just referred to.  So the position simply is that the patentee has the right to take action for acts occurring during that period whereas the exclusive licensee does not. 

Mr Bannon made a submission to the effect that, as I apprehended it, that construction of section 79 should not be accepted because, in circumstances where there is an exclusive licence, the patentee has given up its right to exploit.  That is not to the point, we respectfully submit.  In fact, a patentee who has conferred an exclusive licence on another party has and retains the right to enforce the patent, as Lundbeck did in this case, and that may be a very valuable right which would enable it to, if there is no licence in place, obtain substantial damages, as Lundbeck as patentee did in this case, notwithstanding that there was an exclusive licence in place. 

Lundbeck was able to demonstrate, on the evidence, that the majority of the damages that were payable were payable to it, so our friend’s point that went to this being an absurd or irrational result should not be accepted.

We say that sections 13 and 78 do not assist Lundbeck’s submissions on this point.  They do not deal with the right to start proceedings.  They do not confer…..proceedings and we submit that right is conferred by section 120 for the original term and section 79 in relation to the circumstances that that section deals with.

Section 13 deals with the exclusive rights of the patentee.  It does not confer a right to start proceedings for infringement.  That is the first point.  The second point, perhaps more pertinently to the present issue, section 13 does not confer any right, exclusive rights or otherwise, on any person other than the patentee.  It provides that a patent gives the patentee certain exclusive rights.  It does not confer rights on an exclusive licensee.

The patentee may authorise other persons to exercise – to exploit the invention, as section 13 recognises, but that is a matter for the patentee and its licence, conferred on another person, and section 13 does not confer rights on any other person.  Also the reference to authorising another person in section 13 is not directed to or specific to an exclusive licensee.  It is any person who may be a non‑exclusive licensee, for example, so those words do not assist Lundbeck in its attempt to construe the provisions or the scheme as giving the exclusive licensee a right to start infringement proceedings in respect of the period covered by section 79.

Section 78 does not assist either because that also deals with the exclusive rights of a patentee and, in fact, it is a confining or limiting provision.  It narrows those rights in respect of the period covered by an extension of term.

So, for all of those reasons and as more fully explained by the Full Court, we respectfully submit that the Full Court’s construction of section 79 was correct.  It does not confer a right of action on the exclusive licensee.

STEWARD J:   Do you rely in any way on what is sometimes thought to be a presumption that provisions that create statutory fiction should be construed narrowly?

MR DIMITRIADIS:   Your Honour, I think the answer is yes.  The way we would put it is where there is a statutory fiction that is created which has a retrospective effect, that particularly applies, as it does here.  So, your Honours, that, in summary, is what we say about the section 79 exclusive licensee issue.

I will now ask Mr Lang, if it is convenient to the Court, to deal with the interest issue, which is the next issue in our three‑page outline at paragraph 10.

KIEFEL CJ:   Yes, Mr Lang.

MR LANG:   Thank you, your Honour.  Ground 3 of our friend’s appeal relates to the question of pre‑judgment interest which would be a significant sum in this case if damages were to be payable.  So this ground, as for the remaining issues on the appeal, only arises if your Honours are not with us on the first ground concerning construction of the settlement agreement.

In short, as the Full Court held, interest should run from the date on which the cause of action arose and that is the date on which the extension of term was granted, being 25 June 2014.  May I indicate what we say is the correct reasoning process by reference to particular passages of the Full Court’s judgment.  If your Honours turn to that at tab 10 of the joint core appeal books, the relevant section of the Federal Court Act is set out at paragraph 136 on page 287 of the book. 

There, section 51A of the Federal Court Act is set out which states that the date from which interest runs is the date on which the cause of action arose, and that is there in the final line that one sees on the page.  The words “cause of action” have been construed in the authorities with some differences in meaning, depending on the context. 

Some examples are given in the passage over the page in the Full Court’s judgment, extracted from Sigma Pharmaceuticals v Wyeth.  That is set out at paragraph 138 of the Full Court’s judgment, if your Honours see that, and in particular in the embedded quotation of Justice Brennan in Port of Melbourne Authority v Anshun where reference is made in that passage to those words sometimes being:

used to mean the facts which support a right to judgment . . . sometimes to mean a right which has been infringed . . . and sometimes to mean the substance of an action as distinct from its form –

In this case it does not matter which of those shades of meaning applies because each leads to the same answer, as the Full Court held.  The relevant cause of action is the cause of action under section 79 of the Patents Act and may I add, for completeness, that our friend’s ACL claim is premised on the success of the patent claim under section 79.

Your Honours are familiar with section 79 but may I take your Honours back to it again for this purpose.  It appears in paragraph 17 of the Full Court’s judgment at page 250 of that book.  In tracking through that section in order to determine when the cause of action arises, we see “If” and then paragraph (a):

a patentee applies for an extension of the term of a standard patent –

That is the first event, the application for an extension of term, plainly the cause of action has not arisen yet, and then (b):

the term of the patent expires before the application is determined –

So, that is the second event – patent expires, still the cause of action has not arisen, and then (c):

the extension is granted.

That is the third and final event.  That is when the cause of action arises.  We see that because of the words which follow:

the patentee has –

and these are the key words:

after the extension is granted, the same rights to start proceedings in respect of the doing of an act –

So the rights under section 79 are rights to start proceedings.  They are the only rights which are mentioned, and one does not get them until the extension is granted.  Those rights are in respect of past acts and that is what the remainder of the section defines, that is, in respect of the doing of an act during the period commencing on the expiration of the term of the patent and ending on the day on which the extension was granted as if the extension had been granted at the time when the act was done.

Our friends wish to say that the cause of action arose at the time of those infringing acts, but that is to confuse the date on which the cause of action arises with the date of the acts to which the cause of action applies.  They are not the same thing, in particular because the patentee had no right to start proceedings when those acts occurred.  That error appears in our friend’s outline at paragraph 34 – our friend’s three‑page outline which states:

Section 79 operated to deem the acts as infringing acts for the limitation provision in s 120(4)(b), and a fortiori for fixing the date when the cause of action arose for interest up to judgment –

But that certainly does not follow, a fortiori.  Section 120(4)(b) prescribes a start time for the running of the limitation period.  That is by reference to infringing acts.  It does not prescribe a time when the cause of action arises which is a different question and the relevant question under section 51A of the Federal Court Act for interest purposes and certainly section 120, whether under paragraph (4)(b) or otherwise, does not purport to say anything about pre‑judgment interest.

So in that context, what our friend’s submission does is to confuse the date on which the cause of action arises with the dates of the acts to which the cause of action applies.  I will come in a moment to analogous authority on the principle that the date on which the cause of action arises is not the same as the dates of the acts to which the cause of action applies, to which the Full Court referred, in a moment.

First, turning to what the Full Court held then at paragraph 140 - turning back to that part of the judgment, which is at 289 of the book – there, having stepped through the section in the manner that I have described, the Full Court said:

We do not think it assists the analysis of Lundbeck’s rights under s 79 to describe that section as creating a statutory fiction or a statutory fiction that has effect for all purposes.  There is nothing in s 79 that could deem any cause of action to have arisen prior to the grant of the extension of term upon which [of] the operation of the section depends.

May I also add for completeness, stepping through the section in the manner that I have done, perhaps…..a matter adverted to by your Honour Justice Gageler, in that paragraph (a), if:

a patentee applies for an extension of the term of a standard patent –

and then the section continues, and then (d):

commencing on the expiration of the terms of the patent –

and so on, the relevant acts are there defined.  What one gets out of that is that this confirms that the patent remains the patent.  There is not a new patent that comes into force by reason of section 79.  The section expressly contemplates it is the same patent that is the subject of these rights and what the section does is provide for the operation of a grant of an extension of term that would ordinarily operate in futuro to have effect retrospectively.

Returning then to the question of the court’s holding, we see that the provision expressly provides that the applicant has the rights only after the extension is granted.  Now, confronted with that difficulty of the express terms of section 79, our friends in their written submissions – it was not a matter addressed orally by my friend – contend for a different result by reference to a decision of the House of Lords in Sevcon which is addressed in the next paragraph of the Full Court’s judgment.

May I address that briefly.  That is at paragraph 141 of the Full Court’s judgment and, as one can see from the quotation there embedded in paragraph 141, that decision concerned a different act and a different provision relating to a different issue - section 13(4) of the UK Patents Act.  It was directed to the patentee’s cause of action at the outset of the patent’s life, rather than after expiry date.  It applied to the period after publication of the complete specification, but before the patent is sealed.  It provided that at that time, that is after:

the date of the publication of a complete specification and until the sealing of a patent in respect thereof, the applicant shall have the like privileges and rights as if a patent for the invention had been sealed on the date of the publication of the complete specification –

Pausing there, we see the provision expressly provides that the applicant has the rights after the date of publication and so the rights commence then from the date of publication.  But then there is a proviso and we see that over the page in the Full Court’s judgment in the remainder of paragraph 141.  So, the proviso is the fulfilment of a later condition which is that the patent is sealed. 

The House of Lords had to consider, for the purpose of determining whether the cause of action was statute barred in that case, whether the cause of action arose at the date of publication, on the one hand, or the date of sealing on the other.  The court held, for the reasons given by Lord Mackay that it was the former, the date of publication.

The reason for that was that the express wording of the section provided that the rights do arise after the date of publication and the proviso simply has the effect that one might subsequently lose that cause of action.  The relevant paragraph is quoted down in paragraph 143 on the same page in the first five or six lines there, and relevantly from about the middle of the paragraph:

he has a cause of action from the date of these acts although he may subsequently lose that cause of action by failing to obtain a patent -

So the difference between that section, on the one hand, and section 79 of the Australian Patents Act on the other is that section 13 purported to confer rights on the applicant from the date of publication, whereas section 79 does not purport to confer any rights at all on the patentee until the extension of the term of patent is granted.  That is what the Full Court said at paragraph 144.

I note at paragraph 146 the court identified another example of the principle that the date on which the cause of action…..is not to be confused with the date of the acts to which the cause of action applies.  That example is the cause of action which a liquidator has for recovery of a preference under section 122 of the Bankruptcy Act.

The cause of action is the cause of action of a liquidator and, accordingly, does not arise until the liquidator is appointed and makes the demand.  The cause of action is in relation to past acts, that is the preference payment and the effect of it is to make that past act void, but that does not mean that the cause of action arose at the time of the past act. 

That was the reasoning of Justice McLelland, as his Honour then was, in Spedley approved by the Full Court of the Federal Court there in the Compass Airlines Case referred to at paragraph 146.  Accordingly, for those reasons, as the court said at 145, on any view of what “a cause of action” means, a cause of action under section 79 does not arise until after the extension is granted.  May it please the Court…..

KIEFEL CJ:   Yes, thank you, Mr Lang.

MR DIMITRIADIS:   Your Honours, there is one final issue which arises on our notice of contention.  This is in paragraph 11 of our three‑page outline, the ACL/TPA claim issue, we have called it.  This relates to claims which were upheld by the primary judge by Lundbeck Australia and CNS Pharma, so two parties who were not the patentee, but not dealt with by the Full Court because of the Full Court’s reasons on the settlement agreement.  This would only be relevant if your Honours were to accept the appellant’s submissions in relation to the settlement agreement, just as the section 79 exclusive licensee issue and the interest issue are relevant in that circumstance.

Your Honours, the forensic significance of the claims brought pursuant to the Australian Consumer Law and the Trade Practices Act at first instance was to provide Lundbeck Australia and CNS Pharma with a claim for damages in circumstances where they would not be exclusive licensee and could not sue in relation to patent infringement.  Of course, there was a debate about whether the exclusive licensee could sue for a patent…..in any event.  CNS Pharma was a party who was not an exclusive licensee under the patent.

Her Honour held that if it was necessary to decide – which it was on her Honour’s reasons, those claims should be upheld – and we respectfully submit her Honour was wrong to reach that conclusion.  We say this is an important point which is not merely a question of fact, but rather a question of principle because the only act of Sandoz that was relied on by Lundbeck as the basis for the alleged misleading or deceptive conduct was the sale of Sandoz’s products.  It was said that by selling the products without warning or informing pharmacists that they did or might infringe the patent Sandoz was engaging in misleading or deceptive conduct.  Her Honour accepted that.

We say it is an important point because its effect is potentially chilling on commerce and its effect is also to effectively extend patent rights to parties who do not have the benefit of those rights under the patents legislation, by enabling them to make claims for damages pursuant to the Australian Consumer Law, formerly the Trade Practices Act, based on effectively the same facts that would be used to support a patent infringement action. 

It has become somewhat common in the Federal Court for claims of that kind to be made by parties who are not a patentee or an exclusive licensee but have some relationship with the patentee or some other form of licence under the patent.

We say there are three reasons in summary why the primary judge’s finding that those claims should be upheld was incorrect.  The first one is that no misrepresentation or misleading or deceptive conduct arose from the sale of Sandoz’s products in the circumstances.  Secondly, we submit that, if there was a representation of the kind her Honour found – and her Honour found that there was an implied representation that the products did not infringe any patent that was made – even if that representation was made, we say it was not misleading – it was not a misrepresentation and the conduct was not otherwise misleading.

Thirdly, and importantly, the claimants on these claims did not establish loss or damage – which is an essential requirement for a cause of action under the Australian Consumer Law – formerly the Trade Practices Act. That is now seen in section 236 of the Australian Consumer Law, where the cause of action is one that seeks damages.

If I could address those three points briefly in a little more detail.  The primary judge’s finding as to the implied representation appears at paragraph 545 of her Honour’s reasons, which is at page 182 of the joint core appeal book.  Your Honours will see at about line 22, after referring to the Federal Court authorities in this area which had upheld claims of this kind in other cases, her Honour said:

Sandoz achieved its sales to pharmacists on the basis of an implied misrepresentation that its products did not infringe any patent, but the products would infringe if and when the extension of term was granted.

Now, the first point that we make in relation to that is that the representation that her Honour actually found was a representation as to present fact, that the products did not infringe any patent and, of course, in this particular case, temporal considerations are important because the patent was not on foot, as has been elaborated on in other submissions, at the time that the acts in question took place here.  So, in fact, there was no patent on foot at the time and the products did not infringe the patent.  No case was made by Lundbeck that any other patent was infringed.

We submit that a vendor would not normally be taken merely by selling a product to be warranting that the product does not infringe any patent, be it any patent in the name of the third party, let alone one which is a patent that cannot be enforced at that time, or in relation to which there is a right which is yet to become effective and may never be, that may generate a right on the part of the patentee to enforce that patent. 

The principle of caveat emptor is worth referring to in this context by analogy.  We submit that one would not ordinarily imply a term of this kind into a commercial contract, a term that would require a seller of goods to warn or provide information to the purchaser in the nature of a warranty about the risk of infringement of third party rights.

It is relevant here that Lundbeck called evidence from a pharmacist but did not lead any evidence on this issue.  When I refer to “Lundbeck” I mean the claimants, Lundbeck Australia and CNS Pharma.  There was no evidence as to what such a person, the pharmacist, understood or assumed that Sandoz would be representing, if anything, from the sale of its products, in particular, whether there was anything in the nature of a warranty that the products would not infringe a patent.

The second point, and the second reason why we respectfully submit her Honour erred, is that, in any event, the misrepresentation that her Honour found, the representation that her Honour found, if it was made, would not be misleading, because the products did not, in fact, infringe a patent at the time they were sold, and for this purpose, it is necessary to consider the conduct in question at the time at which it occurred.  That is when a determination must be made as to whether or not it was misleading or deceptive, and the representation at that time that her Honour found was not a misrepresentation. 

At a more general level, we submit that Sandoz’s conduct in making the sales of its products without more was not misleading or deceptive.  As has been discussed, there existed a possibility, objectively, that Lundbeck might ultimately be able to obtain a post‑expiry extension of term, but that was a remote possibility, certainly at February 2007 and, we would respectfully submit, still at June 2009 when the sales commenced.  There was no evidence led by Lundbeck, again, as to pharmacists’ understanding of what, if anything, would be conveyed by this conduct of the sale of the products. 

Thirdly, and importantly, the claimants did not establish an essential element of the cause of action which was that they suffered loss or damage because of the conduct in question.  That onus was on Lundbeck Australia and CNS Pharma.  They had to show, given the nature of the claim, that pharmacists who purchased Sandoz’s products would not have done so if they had been informed of, presumably, the possibility that the products might, if a post‑expiry extension of term were granted, one day be deemed to have infringed the patent under section 79. 

There was no evidence that Lundbeck had ever taken action against pharmacists for infringement of a patent, or that pharmacists would have declined to purchase the products if informed of that remote possibility, and again, that is an area where Lundbeck Australia and CNS Pharma failed to make out an element of their cause of action.

It may be observed in this respect that the primary judge in another part of her Honour’s reasons at 337 and 338, that Sandoz’s decision to launch shortly after 13 June 2009 was reasonable in the circumstances, in particular because of the remoteness of the risk that arose on the additional damages claim.  One might infer that a pharmacist acting reasonably would also not have refrained from purchasing those products, particularly as the risk of the pharmacist being sued by Lundbeck was even more remote.

We say this case, as an additional matter, is quite different from the Federal Court cases that were referred to by the primary judge and relied on by her Honour which were not section 79 cases.  They were cases in which a patent was in force and effect at the time of the sale of the products and accordingly there was contemporaneous infringement, and so they did not apply to the facts of this case. 

But more generally, as I have submitted and dealt with this in writing, we respectfully submit that the reasoning in those cases warrants scrutiny and does not provide a satisfactory answer to the question of why the supplier of a product should be taken, without more, to be representing that it does not infringe any third party patent or, indeed, any other intellectual property right, which is the effect of the reasoning in the cases. 

Although there is a focus on the patent in suit, the reasoning is not limited to that and the reason is to the effect that by the sale of a product

without more, there is a representation conveyed that it does not infringe any patent.  We respectfully submit that that is not something that should be inferred from the mere sale of a product such as to give rise to a cause of action under the Australian Consumer Law, nor the Trade Practices Act…..

Your Honours, that is what I wanted to say about that last issue and I do not need to say anything additional about the last point in our three‑page outline, that is, the proposition that if the matter is to be remitted to the Federal Court, the way in which that is done should preserve the ability of Sandoz to seek to rely on the separate licence that it has been granted by the Commissioner, the patents under section 223.  We do not understand there to be a dispute about that from our friends.  Thank you, your Honours.

KIEFEL CJ:   Yes, thank you, Mr Dimitriadis.  Mr Bannon.

MR BANNON:   Thank you, your Honour.  Just briefly on a few points.  Firstly, in relation to the settlement agreement, just additional points from those which I have already addressed.  My learned friend placed significant emphasis on Lundbeck – sorry, Sandoz giving up a right to revoke.  To the extent that received any airplay in the judgments at all, there is nothing said about it in the Full Court decision, and no doubt that is explicable by reference to the finding of the primary judge at paragraph 269, which I did take your Honours to, but relevantly her Honour’s finding that as an objective circumstance:

Sandoz had little to gain from continuing in the proceedings and little to lose by trying to do a deal to exit –

and the fact that Alphapharm and Arrow were both continuing to seek revocation of the claims.  The Full Court did not gainsay anything in that paragraph.  There was no objective evidence to suggest as a mutually known fact there was any likelihood of Alphapharm or Arrow settling and not pursuing that proceeding.  There was no objective evidence or even subjective evidence as to a mutually perceived or likelihood of a patent being revoked.  The only objective evidence which exists is the fact that the patent was granted, admittedly subsequently, but Justice Lindgren rejected the revocation suit, so did the Full Court.  Special leave for the appeal was rejected.

The only thing one can say was, as a matter of fact, it was a valid patent.  To the extent anyone applied a well‑informed mind, one can only presume that that well‑informed mind would have come to the view that giving up a revocation suit was giving up a loser, but this is an emphasis which has achieved a traction for the first time before this Court.

Secondly, there was a debate as to whether or not there were rights which would have been assigned or a licence, for example, on 14 June 2009.  One has to factor into that debate this fact, namely, as of 13 June 2009, or the day after, in fact there was no application for extension which was not dependent upon an extension of time. 

An extension of time required the demonstration of an error, but equally it required the exercise of a discretion which, on its face, was large, obviously taking into account relevant matters, but even if you showed error, you did not necessarily – entitled to the exercise of discretion.

One of the matters her Honour referred to which ultimately was relied on – she referred to at 336 – was that the error was based on a view, reasonably held by Lundbeck, that the application based on Lexapro was the right one and that there was some evidence that it accorded with the approach around the world.  But be that as it may, in terms of analyses, at best one could say that Lundbeck was the object of a potentially available exercise of discretion which hardly sounds as – which we submit, does not – certainly is not a right.  It may be debatable as to whether or not it is assignable, but certainly to describe it as a contingent right is perhaps somewhat loose language. 

Then lastly, on the agreement, and I may be misunderstanding something my learned friend said, but your Honour Justice Gleeson asked my learned friend of the circumstances in which 3(1)(b) and (c) could operate.  Perhaps I will just put what I say, because I was not sure whether my friend was indicating they could not operate at all.

They could – (c) could operate, if a view was taken that Lexapro was the right registration, and that was one of the issues being debated before Justice Lindgren and then the Full Court.  In other words, the first ART registration was the one of the individual enantiomer, and (b) could operate if, as the Commissioner took the view, although the application was based notionally on the wrong registration, nevertheless he had a power to amend…..the application and deem it as if it was relying on the…..and then grant an extension to that date.  I am not sure whether that is different to what my learned friend said, but in case it was, I just wanted to clarify. 

Then coming next to section 79, my learned friend said a reason for the outcome as identified by the Full Court and endorsed by my learned friend, was that only a patentee can apply for an extension.  So much may be accepted, but that is also true of an extension which is granted before expiry of the patent, only a patentee can apply for that extension as well.

One of the curiosities of the outcome of the Full Court decision is that if, by happenstance, the extension is granted before the expiry of the patent, the term is extended, the patent never expires and the exclusive licensee has full rights to pursue via section 120 and via the contractual licence it has from the patentee via section 13 for the rights and remedies, but if, for example – and I will not say because of this case, but there were some issues ‑ for whatever reason, the determination is delayed by various reasons and points are taken, et cetera, it happens the day after or a year after, then some different legislative outcome is prescribed.  There is no logic to it.

My learned friend says section 13 does not refer to exclusive licensee.  That is absolutely right.  It does not because it is the patentee who has the rights, which a patentee can confer, if it chooses, by a contract to an exclusive licensee.  If it does so and if one…..section 122 says any patentee and any licensee can exercise those rights.

Equally, section 79 does not refer to exclusive licensee and it does not need to because there may not be an exclusive licensee, but if one exists, section 79 will operate in connection with any contractual right and section 120, to say, in effect, that a patentee can sue via section 79 and section 13, section 120 equally can sue.  One would not read section 79 as constraining the ordinary operation, we would submit, of its complementary operation with section 120.

In relation to my learned friend’s response to Justice Steward’s question as to the potential operation and the presumption of retrospective effect, a true retrospective piece of legislation, yes one can accept a presumption may apply, but this has to be understood as part of a suite of legislation which is designed to capture what in a perfect world would not happen, namely, a gap between the date between expiry of the patent and a determination of the extension.

Then, I think, I believe I rely on what we said already in relation to the interest point and, as I say, I think one may accept that my learned friend’s reference to the Sevcon Case, although we did refer to it, each piece of legislation depends on its particular terms, but as said in, as we have relied on, Firestone, the patent legislation is sui generis, and one has to look at the provisions, and this particular – these provisions in the context in which they arise, and where the intent here is to effectively put parties back in the position, as I say, to address this gap which hopefully does not arise, in addressing the gap by saying, for the limitation reasons, the same acts apply.  It is only logical, as her Honour said, for all purposes, including interests, for the cause of action the section 51A Federal Court interest would apply.

Then, lastly, in relation to the notice of contention, could I just say this - and I did mention this earlier – if we are successful on the exclusive licence point – I am sorry, could I just add one other comment on exclusive licence.  The exclusive licence matter is significant in damages as a general proposition and if an exclusive licence exists they can – well, usually it would be the party which actually makes the sales, and therefore damages can be for lost sales by the exclusive licensee. 

It is quite common for the owner of the patent not to be a vendor, and that was the case here.  It is licenced to exclusive licensees and they will get - and the patentee will get royalties.  So an operation of section 79, which means effectively to get the full benefit of full damages, a patentee has to switch from being a licensor to a manufacturer, again, does not serve an overall purpose.

Now, in the present case it was the fact that Lundbeck Australia got substantial damages independently of the exclusive licence issue because the way in which it operated it did not charge royalties, but there was transfer pricing - legitimate transfer pricing arrangements between Australia and Denmark and the accounts – the evidence of CNS Pharma which is a wholly owned subsidiary of Lundbeck Australia was treated as a single economic entity so that all receipts, whether by sales of CNS Pharma of Esipram or by Lundbeck of Lexapro were treated as a single – they were not divisible amounts. 

So that if Lexapro succeeds – sorry, if Lundbeck Australia succeeds on exclusive licence damages, there is no independent monetary effect on failing to get the CNS Pharma damages, and that is apparent from the orders of her Honour where on page 199, 2(b), the order in favour of the second applicant for $1,369,000 plus interest is an order in favour of the second applicant and the applicant 824, so that is the two companies.  So, in other words, if we restore the exclusive licensee damage, then the point in relation to CNS has no financial impact whatsoever. 

But I was just going to add, that amount which we recovered and seek to re‑recover, which was the amount effectively left in Australia, I think the evidence was it was about 3 per cent of return – revenue.  That revenue was left in Australia and in the hands of the single economic entity, namely the licensee, Lundbeck Australia and CNS, and it is that amount which was – everything else was shipped off to Denmark, and it is that amount which is sought to be recovered.

That is why, if the exclusive licence point succeeds, there is no monetary difference.  But against that, assuming that the matter is otherwise live ‑ and again it is only live agreement on the settlement agreement point – the first point to note is that the notice of contention, which appears at pages 377 and 388, only raises it as an issue as to whether or not there is misleading conduct, not as to whether there was consequential damage.

Secondly, my learned friend criticised or made submissions about the content or the nature of the finding made by her Honour.  Her finding must be understood in the context as a finding that was misleading not to refer to potential purchasers of the future risk of patent infringement and that is how the Full Court interpreted it.  One sees that in the Full Court judgment at 148 where, on page 292:

The primary judge found that Sandoz engaged in misleading . . . conduct by failing to warn pharmacists that the supply . . . may infringe the Patent if and when an extension of the term was granted.

That is the proper understanding of what her Honour’s finding was, firstly.  Then my learned friend submits – and I should say that that was the finding against the background of her Honour’s findings as to Lundbeck’s own internal recognition of the risk.  One will see a reference to that in paragraph 339 of the primary judge’s decision, paragraphs 340 and 341 and two other paragraphs I have referred your Honours to before, 346 and 348.

There was a lot of evidence about internal machinations as to whether they should launch.  It had to go to Denmark for an assessment of the risks.  Effectively, what her Honour found was that internally they were appreciating all of these risks but they were not conveying that to the market and that is what her Honour found was misleading.

If one looks at paragraph 534 of her Honour’s judgment, firstly the last sentence there says it makes “no difference to the calculation of damages”, for the reason I gave before.  Then at 538 her Honour refers to a series of decisions where this type of point has been made and accepted, that is, in the context of products which are supplied without a warning of risks there has regularly been found as a matter of fact in the particular circumstances that the failure to warn of a risk is misleading conduct. 

Now, as a finding of fact in the particular circumstances, the circumstances include a wealth of evidence her Honour had about the way pharmacists – about the way doctors prescribe these things, whether cost is relevant, the crowded market – there is a whole lot of material which has not been revisited, elevated to your Honours.  But all we say is this is a finding which is open.  It is a factual finding which your Honours would not disturb.  To suggest it is a matter of wide significance, we would respectfully submit it is not.  It depends on the facts in each case.  Then lastly, in paragraph 545 her Honour found that:

Sandoz achieved its sales to pharmacists on the basis of an implied misrepresentation –

Now, that is not…..which is contested apparently, which is outside the notice of contention.  Your Honours would not entertain a consideration of that at this point.  Again, it is a factual finding.  We also relied on a number of cases in our submissions about the fact that where somebody sets out to deliberately make a representation for the purposes of selling things, that is conduct, one can infer that it is likely to have had an effect.

Again, that is a finding that was made in paragraph 545.  Yes, it does not say all the detailed reasons, but her Honour had before her the availability of a whole range of other products which were there, including our products - mainly our products - and the likelihood that this was causative, assuming your Honours are prepared to entertain the argument outside the notice of contention, which again is a finding available to her Honour on all the evidence and your Honours would not disturb it.  May it please the Court.

KIEFEL CJ:   Yes, thank you, Mr Bannon.  The Court reserves its decision in this matter and adjourns to 10.00 am on Tuesday, 11 October.

AT 3.53 PM THE MATTER WAS ADJOURNED