H Lundbeck A/S v Sandoz Pty Ltd
[2019] APO 18
•11 April 2019
IP AUSTRALIA
AUSTRALIAN PATENT OFFICE
H Lundbeck A/S v Sandoz Pty Ltd [2019] APO 18
Patent:623144
Title: (+)-Enantiomer of citalopram and process for the preparation thereof
Applicant for licence: Sandoz Pty Ltd
Patentee and Opponent: H Lundbeck A/S
Hearing Officer: Dr S.D. Barker – Deputy Commissioner of Patents
Decision Date: 11 April 2019
Hearing Date: 19 November 2018 and 18 March 2019 in Canberra
Catchwords: PATENTS – section 223(9) and regulation 22.21 – application for licence to exploit – opposition to the application – relevant considerations – exploitation found – definite steps to exploit not found – patent ceased – application for extension of term was not filed in time – exploitation was because of the failure to file the for extension of term in time – balance of discretionary considerations – grant of licence – costs
Representation: Counsel for the patentee: A. Bannon SC and L. Merrick
Solicitor for the opponent: Corrs Chambers Westgarth
Counsel for the licence applicant: J. Hennessy SC and P. Arcus
Solicitor for the applicant: Clayton Utz
IP AUSTRALIA
AUSTRALIAN PATENT OFFICE
Patent:623144
Title:(+)-Enantiomer of citalopram and process for the preparation thereof
Patentee: H Lundbeck A/S
Date of Decision: 11 April 2019
DECISION
I grant to Sandoz Pty Ltd a licence to exploit the invention claimed in patent number 623144. The licence is granted subject to the following terms.
1.The licence commences on 14 June 2009 and continues until the expiration of the term of the patent on 9 December 2012.
2.The licence is personal to Sandoz Pty Ltd in the sense that:
a) it belongs to that company;
b) it may be transferred with that company if that company changes hands by acquisition or merger, but it cannot be assigned or transferred; and
c) it cannot be sublicenced.
I direct that details of the licence be entered in the Register of Patents.
I award costs in accordance with Schedule 8 of the Regulations against H Lundbeck A/S.
Pursuant to section 224(2) and regulation 22.26(3) I give notice to the parties that, subject to the Administrative Appeals Tribunal Act 1975, application may be made to the Administrative Appeals Tribunal for review of this decision by or on behalf of the person or persons whose interests are affected by the decision.
REASONS FOR DECISION
Patent application number 36295/89 was filed on 13 June 1989 under the provisions of the Patents Act 1952.[1] A patent was granted on 31 August 1992 as patent number 623144 (the patent). The patentee is H Lundbeck A/S (Lundbeck). Pursuant to section 234(2) of the Patents Act 1990 (the Act), it is the 1990 Act that applies to the patent, including the provisions of Chapter 6.[2] The term of the patent has been extended under section 76 of the Act until 9 December 2012.
[1] As far as I can determine, this is the only patent filed under the provisions of the Patents Act 1952 that is still subject to proceedings before the Commissioner.
[2] Part 3 of Chapter 6 was inserted by the Intellectual Property Laws Amendment Act 1998, and commenced on 27 January 1999.
The present proceedings arise from applications under regulation 22.21 of the Patents Regulations (the Regulations) for licences to exploit the patent. Applications were filed by each of Alphapharm Pty Ltd (Alphapharm), Apotex Pty Ltd (Apotex), Aspen Pharma Pty Ltd (Aspen) and Sandoz Pty Ltd (Sandoz) (collectively, the Generics). The applications were opposed by Lundbeck. Alphapharm, Apotex and Aspen have subsequently withdrawn their applications, so the only remaining licence application is that filed by Sandoz. The sole matter to be decided in this decision is whether or not to grant a licence to Sandoz.
Both parties filed written submissions prior to the hearing: Sandoz filed submissions dated 5 November 2018 (Sandoz submissions), Lundbeck filed submissions dated 12 November 2018 (Lundbeck submissions), and Sandoz filed reply submissions dated 16 November 2018 (Sandoz reply submissions). The matter was heard in Canberra on 19 November 2018. Following the hearing the Federal Court issued a decision that is relevant to this matter.[3] Sandoz filed further submissions dated 30 November 2018 relating to the Jagot decision (Sandoz supplementary submissions), Lundbeck filed further submissions on 7 December 2018 (Lundbeck supplementary submissions), and Sandoz filed submissions in reply on 17 December 2018 (Sandoz supplementary reply submissions). The hearing was reopened on 18 March 2019. I allowed the parties to file further submissions after the hearing. Final submissions were filed by Sandoz on 22 March 2019, by Lundbeck on 3 April 2019 (Lundbeck final submissions) and by Sandoz on 8 April 2019 (Sandoz final submissions).
[3] H Lundbeck A/S v Sandoz Pty Ltd [2018] FCA 1797 (Jagot decision).
The patent and the history of litigation
Citalopram is a compound belonging to the therapeutic category of selective serotonin re-uptake inhibitors. It is used as an antidepressant. Citalopram is a mixture of two enantiomers in equal amounts.[4] The racemate of citalopram is covered by patent number 509445 which ceased on 5 January 1993. The racemate is included in a pharmaceutical marketed as Cipramil, which was included in the Australian Register of Therapeutic Goods (ARTG) on 9 December 1997.
[4] Each enantiomer is the mirror-image of the other enantiomer, in the same way that the left and right hand are the mirror-image of each other. It is a property of enantiomers that they will rotate plane-polarised light either clockwise (the (+)-enantiomer) or counterclockwise (the (-)-enantiomer). A mixture of two enantiomers in equal amounts is known as a racemate, and does not rotate plane-polarised light.
The (+)-enantiomer of citalopram, also known as escitalopram, is the pharmaceutically active enantiomer. Escitalopram is the subject of the present patent. Escitalopram is included in the pharmaceutical marketed as Lexapro. Lexapro was included in the ARTG on 16 September 2003. An extension of the term of the patent based on the inclusion of Lexapro was granted on 27 May 2004.
Alphapharm requested rectification of the Register on the basis that the extension of term was wrongly calculated. The Commissioner found that the extension of term should have been based on the inclusion of Cipramil rather than Lexapro and recalculated the extension accordingly.[5] On appeal, Lindgren J agreed that the extension should have been based on the inclusion of Cipramil, and held that the extension of term should be removed from the Register.[6] The Full Court upheld this decision.[7] The High Court refused special leave to appeal.[8]
[5] Alphapharm Pty Ltd v H Lundbeck A/S [2006] APO 18, 69 IPR 629 (first Barker decision).
[6] Alphapharm Pty Ltd v H Lundbeck A/S [2008] FCA 559, 76 IPR 618 (Lindgren decision).
[7] H Lundbeck A/S v Alphapharm Pty Ltd [2009] FCAFC 70, 81 IPR 228 (2009 Full Court decision).
[8] Alphapharm Pty Ltd v H Lundbeck A/S [2009] HCATrans 324.
On 12 June 2009 (the day after the 2009 Full Court decision) Lundbeck filed a new application for an extension of term based on the inclusion of Cipramil, and an application under section 223 for an extension of time to make the application for an extension of term.
The normal term of the patent expired at the end of 13 June 2009,[9] and shortly after the Generics launched generic products containing escitalopram. In Sandoz' case the products are called the Esitalo products. For the present matter it is significant to note that Esitalo products were imported in late May 2009, followed by the launch of the Esitalo products on 15 June 2009 and sale of the products commencing on 16 June 2009.[10]
[9] The term of the patent is governed by section 67. At the time of grant of the patent the term of the patent was 16 years from the date of the patent. The Patents (World Trade Organization Amendments) Act 1994 amended section 67 such that the term of a standard patent was changed to 20 years from the date of the patent. That amendment applied to all patents granted before 1 July 1995 and whose term had not expired. The date of the patent is determined according to section 65.
[10] Declaration of Marc-Andre Bombardier dated 8 May 2017 at [14].
The extension of time was opposed by Alphapharm, Apotex, Sandoz and Sigma Pharmaceuticals (Australia) Pty Limited. The extension of time was granted by the Commissioner on 1 June 2011.[11] On appeal, the Administrative Appeals Tribunal (AAT) upheld the decision of the Commissioner.[12] The decision of the AAT was upheld by the Full Court of the Federal Court.[13] The High Court granted special leave to appeal the decision of the Full Court and the appeal was dismissed on 5 November 2014.[14]
[11] Alphapharm Pty Limited v H Lundbeck A/S [2011] APO 36, 92 IPR 628 (Ayers decision).
[12] Aspen Pharma Pty Ltd and Commissioner of Patents [2012] AATA 851 (AAT decision).
[13] Aspen Pharma Pty Ltd v H Lundbeck A/S [2013] FCAFC 129, [2014] AIPC 92-472.
[14] Alphapharm Pty Ltd v H Lundbeck A/S [2014] HCA 42, 108 IPR 459 (2014 High Court decision).
On 18 and 20 December 2013 the Generics filed applications for licences under regulation 22.21 and Lundbeck filed oppositions on 28 January 2014 resulting in the present proceedings. On 5 March 2014 the Commissioner stayed the licence proceedings pending the outcome of the extension of time and extension of term applications.
In the meantime, the extension of term application was accepted and opposed by the Generics (a stay was refused by the Federal Court[15]). The extension of term based on the inclusion of Cipramil was granted by the Commissioner on 25 June 2014.[16] The following day Lundbeck commenced infringement proceedings in the Federal Court against the Generics. The term of the extension granted was to 9 December 2012. The grant of the extension of term was upheld on appeal,[17] with the High Court ultimately refusing special leave to appeal on 14 March 2016.[18]
[15] Aspen Pharma Pty Ltd v H Lundbeck A/S [2013] FCA 324.
[16] Alphapharm Pty Ltd v H Lundbeck A/S [2014] APO 41, 109 IPR 323.
[17] Alphapharm Pty Ltd v H Lundbeck A/S [2014] FCA 1185, 110 IPR 59; Alphapharm Pty Ltd v H Lundbeck A/S [2015] FCAFC 138, 114 IPR 479 (2015 Full Court decision).
[18] Alphapharm Pty Ltd & Ors v H Lundbeck A/S [2016] HCATrans 52.
The extension of term being finally determined, a delegate notified the parties that the stay of the licence proceedings had expired, and this led to the parties being heard on the future conduct of the licence oppositions. On 8 July 2016 Deputy Commissioner Spann refused to stay the proceedings and set a timetable for serving evidence in the oppositions.[19] An appeal to the Federal Court was dismissed, and the court declared that the provisions of section 223(9) apply to the present case.[20]
[19] H Lundbeck A/S v Alphapharm Pty Ltd [2016] APO 45 (Spann decision).
[20] H Lundbeck A/S v Commissioner of Patents [2017] FCA 56, 123 IPR 1 (Beach decision). Lundbeck have asked to be released from undertakings so that they can appeal the Beach decision.
Alphapharm, Apotex and Aspen subsequently withdrew their applications for licences, and the co-pending claims for infringement in relation to Alphapharm, Apotex and Aspen were discontinued. Jagot J found that Sandoz had infringed the patent.[21] An appeal to the Full Court of the Federal Court has been filed.[22]
[21] Jagot decision at [365].
[22] NSD 22/2019.
The statutory provisions
Section 223 of the Act is a general remedial provision.[23] Subsection (2) reads:
"(2) Where, because of:
(a) an error or omission by the person concerned or by his or her agent or attorney; or
(b) circumstances beyond the control of the person concerned;
a relevant act that is required to be done within a certain time is not, or cannot be, done within that time, the Commissioner may, on application made by the person concerned in accordance with the regulations, extend the time for doing the act."[24]
[23] 2014 High Court decision at [65].
[24] Section 223(2).
A "relevant act" is defined in section 223(11), and includes the period for filing an application for an extension of term.[25] In the present case an extension of time was granted for filing an application for an extension of term. The benefit provided by section 223(2) is balanced by the protection or compensation of persons affected by an extension of time in certain circumstances:
"(9) Where the Commissioner grants:
(a) an extension of more than 3 months for doing a relevant act; or
(b) an extension of time for doing a prescribed relevant act in prescribed circumstances;
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 under subsection (4), 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 time allowed, the lapsing of the patent application or the ceasing of the patent, as the case may be."[26]
[25] 2014 High Court decision at [73], [74].
[26] Section 223(9).
The interaction between the provisions of section 223 was discussed in the Beach decision:
"Section 223 has a harmonious balance to its operation. On the one hand, in the circumstances described in s 223(1) (involving error on the part of the Commissioner, an employee, the receiving Office or a similar kind of third person), s 223(2) (involving error on the part of the relevant person, his or her agent or error beyond their control) or s 223(2A) (involving the failure of an act to be done within a certain time despite the person concerned taking due care to ensure its doing within the required time), s 223 provides for the Commissioner to grant an extension of time. On the other hand, s 223(9) provides for the correlative possibility of the Commissioner granting relief to third parties adversely affected by the grant of the extension of time. If an indulgence is granted to a patentee for an error that is sufficient to enliven the Commissioner's discretion to grant an extension of time, s 223(9) provides the remedy to adversely affected third parties."[27]
[27] Beach decision at [100].
It is significant to note that protection or compensation is only available to persons who exploited (or took definite steps by way of contract or otherwise to exploit) the invention before the day the application for extension of time was advertised. The concluding words of the subsection were considered in the Beach decision:
"In summary, the correct construction of s 223(9) and reg 22.21 is that a person may be granted a s 223(9) licence where at any time before the extension of time was advertised they exploited (or took definite steps to exploit) the invention concerned and those steps have the relevant nexus to one or more of the s 223(9) criteria, namely, the failure to do the relevant act within the time allowed or the lapsing of a patent application or the ceasing of a patent."[28]
[28] Beach decision at [117].
His Honour went on to find that "ceasing" is used in a broad sense in section 223(9) and includes the expiry of the term of a patent. [29] Recently Jagot J came to a different conclusion when considering the scheme of section 223(7) to 223(10). [30] I will return to this inconsistency later in my decision.
[29] Beach decision at [131].
[30] Jagot decision at [157].
The prescribed provisions that apply to section 223(9) are found in regulation 22.21, which relevantly states:
"22.21 Protection or compensation of certain persons
(1) The following provisions of this regulation are prescribed for subsections 41(4), 150(4) and 223(9) of the Act.
(2) Persons who availed themselves of or exploited, or took definite steps by contract or otherwise to avail themselves of or exploit, inventions:
...
(c) in the case of inventions to which subsection 223(9) of the Act applies — within the period of time extended under that subsection;
may apply, in the approved form, to the Commissioner for the grant of licences to exploit the inventions.
(3) The Commissioner must give a copy of the application to:
...
(b) a patent applicant or patentee of the application or patent for which an extension of time was granted under section 223 of the Act;
…
and to any other person the Commissioner believes to have an interest in the application.
(4) A person on whom a copy of an application has been served may oppose the grant of the licence.
(5) The Commissioner, if reasonably satisfied that the application should be granted, must grant a licence to the applicant on such terms as the Commissioner thinks reasonable."
Pursuant to subregulation (2) the persons who can apply for a licence are those who exploited (or took definite steps by way of contract or otherwise to exploit) the invention within the period of time extended (this being language somewhat different to that used in section 223(9)). These provisions were considered by the Federal Court in the context of an application to stay infringement proceedings pending the determination of a licence application before the Commissioner.[31] Bennett J noted that, as prescribed by regulation 22.21, the persons who may apply for a licence are not any persons who took steps to exploit the invention concerned, but only those persons encompassed within section 223(9). Her Honour stated:
"It is not in dispute that it is for the Commissioner rather than the Court to decide whether or not to grant a licence under s 223(9) of the Act and Reg 22.21 of the Regulations and to determine the terms of such a licence as she thinks reasonable."[32]
"Section 223(9) of the Act is not designed to protect a person who by happenstance takes steps to exploit a patent during a period in which it is ceased. It cannot be that a person who manufactures and sells products within the scope of the claims of a patent can be protected simply because that person is lucky enough to have commenced those steps while that patent was not in force through an error or omission of the patentee. There must be a link between the fact that the particular patent has ceased and reliance upon that fact by the person seeking to obtain the protection. Regulation 22.21 of the Regulations does not refer to that necessary link but the regulation can rise no higher than the subsection to which it refers and for which it is prescribed."[33]
[31] Law v Razer Industries Pty Limited [2010] FCA 1058, [2010] AIPC 92-398 (Razer).
[32] Razer at [15].
[33] Razer at [27].
These provisions have been considered by Deputy Commissioner Herald in HRC Project Design Pty Ltd v Orford Pty Ltd[34] where a licence was granted, and by a delegate of the Commissioner in Garden City Planters Pty Ltd v Vivre Veritas Pty Ltd[35] where a licence was refused. Both cases involved circumstances where a patent ceased for failure to pay a renewal fee and was subsequently restored. The provisions were most recently discussed by Deputy Commissioner Spann in relation to the present patent, where he summarised the relevant principles as follows:
"The Act and Regulations do not state any grounds for opposition to a licence but the considerations apparent from the cases above appear to be:
·was there relevant exploitation of the invention?
·did the applicant have knowledge of the status of the patent at all material times?
·did the applicant exploit the invention because of the failure to do the relevant act within time?
·should a licence be granted? and, if so
·on what terms?"[36]
[34] [1997] APO 12, 38 IPR 121 (HRC).
[35] [2012] APO 133, 99 IPR 403.
[36] Spann decision at [23].
In applying these principles it is relevant to note that section 223 provides a further form of protection in subsection (10):
"(10)Infringement proceedings cannot be brought in respect of an infringement committed:
(a) between the day on which the patent application lapses and the day on which it is restored; or
(b) between the day on which the patent ceases and the day on which it is restored."
It is also relevant to note section 79, which sets out the rights of a patentee where an extension of the term of a patent is granted after the normal 20 year term of the patent has expired:
"79 Rights of patentee if extension granted after patent expires
If:
(a) a patentee applies for an extension of term of a standard patent; and
(b) the term of the patent expires before the application is determined; and
(c) the extension is granted;
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; 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."
Section 79 has the effect of treating an extension of term as applying from a date earlier that when it was actually granted. This was explained by Jagot J:
"Section 79 deals with the gap by creating a legal fiction. The fiction involves treating the extension as granted at the time the (infringing) acts were done when in fact, the acts must have occurred within the gap between expiry of the patent and the grant of the extension of the term. The rights which s 79 vests in the patentee under the legal fiction are expressed to be the same rights to start proceedings the patentee would have had if the extension had been granted when the act was done. As explained, for the fiction to work for the patentee, those rights (to start proceedings), to be the 'same rights' the patentee would have had, necessarily carry with them the patentee’s exclusive s 13 rights to exploit the invention. That is, the s 79 fiction can only function at all if part of the fiction is that during the period covered by s 79, when the extension of term is granted, the patentee has the s 13 exclusive rights to exploit the invention as if it were 'during the term of the patent', when in fact that period is never 'during the term of the patent'."[37]
and can be simply summarised as:
"s 79 is a substantive provision which has the effect that the patentee's rights under the patent backdate to the date of expiry"[38]
[37] Jagot decision at [187].
[38] Jagot decision at [194].
If a licence is granted by the Commissioner, particulars of the licence must be registered in the Register of Patents.[39] A decision under section 223 or regulation 22.21(5) can be reviewed by the AAT.[40]
[39] Section 187 and regulation 19.1.
[40] Section 224(1) and regulation 22.26(2).
The evidence
An opposition to the grant of a licence is a procedural opposition by virtue of the definition in regulation 5.2 and regulation 5.10(3). The conduct of a procedural opposition is determined by regulation 5.12:
"5.12 Practice and procedure
The Commissioner may:
(a) decide the practice and procedure to be followed in a procedural opposition; and
(b) direct the parties accordingly."
Pursuant to this regulation the parties were directed to file evidence which is summarised in this table:
Evidence Declarant Date Reference In Support Kim Anne O'Connell 8 May 2017 O'Connell 1 Marc-Andre Bombardier 8 May 2017 Bombardier James Sharkey 8 May 2017 Sharkey In Answer John Meidahl Petersen 26 January 2018 Petersen Owain Stone 31 January 2018 Stone Stephen Marcus Stern 31 January 2018 Stern 1 Stephen Marcus Stern 1 February 2018 Stern 2 Michael James Caine 2 February 2018 Caine In Reply Paul Jones 13 April 2018 Jones Kim Anne O'Connell 13 April 2018 O'Connell 2
Lundbeck also filed material that it requested the Commissioner consider under regulation 5.23. Sandoz filed material responding to the Lundbeck material. It is the practice of the Commissioner to consider documents under regulation 5.23 where the balance of relevant considerations justifies such action.[41] In this matter each party has been given a copy of all documents and has had the opportunity to respond. The parties referred to this material as part of their submissions at the hearing. On the basis of the submissions at the hearing I am satisfied that the material is of sufficient relevance to justify relying on it in this opposition. I have had regard to the material provided by the parties.
[41] Reflex Instruments Asia Pacific Pty Ltd v Minnovare Limited [2017] APO 8.
The facts
The basic facts of this case are quite simple.
1.Esitalo is the brand name of Sandoz' generic escitalopram products.[42]
[42] Sharkey at [15].
2.Sandoz applied to register its Esitalo products on the ARTG on 31 October 2007, and the products were registered on 23 October 2008.[43]
3.Sandoz applied under the Pharmaceutical Benefits Scheme (PBS) for listing of Esitalo 10 mg and 20 mg tablets, blister packs on 12 March 2009.[44] Sandoz received approval on 1 May 2009.[45]
4.Sandoz imported Esitalo products from India on 27 May 2009.[46]
5.Sandoz launched the Esitalo products on 15 June 2009.[47]
6.Sandoz commenced sale of the Esitalo products on 16 June 2009.[48]
[43] Bombardier at [19].
[44] Sharkey at [48].
[45] Sharkey at [49].
[46] Bombardier at [40].
[47] Bombardier at [14].
[48] Bombardier at [14].
The issues
Sandoz' application for a licence can be summarised as follows:
·Sandoz is alleged to have exploited the invention (although Sandoz do not admit that they have exploited the invention);
·the alleged exploitation occurred because the patent had ceased;
·the alleged exploitation occurred because of the failure to file an application for extension of term in time;
·Sandoz made its decision to launch its products in the genuine belief that the extension of time would not be granted; and
·Sandoz was not informed of the application for extension of term until it was ready to launch its product.
Lundbeck filed their notice of opposition on 28 January 2014. The statement of grounds and particulars identifies the following issues:
·was there exploitation;
·is there a causal link;
·the patent did not cease;
·was there exploitation "because of" ceasing of the patent;
·discretionary matters;
·did Sandoz suffer prejudice;
·the public interest; and
·prejudice to Lundbeck.
Having regard to these points and the law as set out above, there are a large number of matters that I must consider in this opposition. These matters are of two types – matters arising from the Act, and matters arising from the Regulations.
Matters arising from section 223(9) are:
(a)is Sandoz a person who can claim protection or compensation;
(b)what is the invention for the purposes of this action;
(c)what was the relevant act that was not done in time;
(d)has there been an extension of time of more than three months for the doing of the relevant act;
(e)when was the extension of time advertised;
(f)did the applicant for the licence either exploit, or take definite steps to exploit, the invention before the date that the extension of time was advertised;
(g)did the patent cease or the application lapse;
(h)did the applicant for the licence have knowledge of the status of the patent at all relevant times; and
(i)was exploitation or steps taken "because of" the failure to do the relevant act in time, the lapsing of the application or the ceasing of the patent.
Matters arising from regulation 22.21 are:
(j)did the applicant for the licence either exploit, or take definite steps to exploit, the invention during the period of time extended;
(k)if all of the criteria arising from section 223(9) are satisfied, is there a discretion whether to grant a licence;
(l)if there is a discretion, what matters are relevant to the exercise of the discretion and what is the outcome of the balance of those considerations; and
(m)on what terms should a licence be granted.
Consideration
I will consider in turn each of the matters identified above.
a) Is Sandoz a person who can claim protection or compensation?
A preliminary matter mentioned at the hearing is whether section 223(9) can apply to a person who recognises that there is a risk that the patent will be restored. This is relevant for two reasons. First, Sandoz received advice from Wayne Condon on 27 May 2009 that it would be possible for Lundbeck to seek an extension of time.[49] Second, Lundbeck filed an extension of time on 12 June 2009.
[49] Sharkey declaration at [60].
The HRC decision can be seen as giving some support to the view that Sandoz cannot rely on the provision:
"The Act also recognises [by way of s.223(9)] that persons who have exploited the invention (or taken definite steps ...) require 'protection or compensation' in the event that a patent is restored. This is a natural consequence of the patent system, wherein there is an expectation that when a patent ceases the invention is free for all to use - the monopoly rights only exist while the patent is 'in force'. I also observe that when a patent ceases, the public has no knowledge of whether or not the patentee has suffered an 'error or omission' such that the patent might be restored under s.223; and it is not reasonable (nor in the public interest) to impute a need for caution based on a possible request under s.223 - as that would be tantamount to a de facto maintenance of the patent monopoly for whatever period might be deemed appropriate (potentially years) after the patent has formally ceased."[50]
[50] HRC at page 127.
I consider that Deputy Commissioner Herald chose his words in relation to the facts of that case, and was not saying that section 223(9) cannot apply when a person knows that an extension of time is likely. In order to understand the power conferred by section 223(9), it is necessary to follow the normal approach to statutory interpretation:
"questions presented by the application of legislation can be answered only by first giving close attention to the relevant provisions."[51]
[51] Shi v Migration Agents Registration Authority [2008] HCA 31, 235 CLR 286 at [92].
The subsection states that it provides for:
"the protection or compensation of persons who … exploited … the invention concerned because of the failure to do the relevant act within time"
The words "because of" are a matter that I will consider later, but they suggest that the state of mind of the person who exploited the invention must include knowledge that the relevant act was not done:
"There must be a link between the fact that the particular patent has ceased and reliance upon that fact by the person seeking to obtain the protection."[52]
[52] Razer at [27].
There is nothing in the words of the subsection that explicitly states that the person who exploits the invention must also be unaware that the patent may be restored. Turning to whether exploitation itself carries any connotation of knowledge, the term "exploit" is defined in the Act as:
" 'exploit', in relation to an invention, includes:
(a) where the invention is a product--make, hire, sell or otherwise dispose of the product, offer to make, sell, hire or otherwise dispose of it, use or import it, or keep it for the purpose of doing any of those things; or
(b) where the invention is a method or process--use the method or process or do any act mentioned in paragraph (a) in respect of a product resulting from such use."[53]
[53] Schedule 1 of the Act.
These words make no relevant reference to the state of mind of the person.[54] It is fundamental that exploitation is the exclusive right of the patentee during the term of the patent,[55] and that exploitation without authorisation by the patentee constitutes infringement. Where infringement occurs without knowledge of the patent, it still constitutes exploitation although there may be a defence of innocent infringement.[56] I am satisfied that a person can exploit an invention without any knowledge of the existence or status of a patent. Similarly, if a person was aware that a patent had ceased but could be restored in the future their actions would still be an exploitation. In all these situations the working of the invention would constitute exploitation. I see no reason to construe section 223(9) as limited only to providing protection to persons who exploited the invention without knowledge that the patent was likely to be restored.
[54] Putting to one side that keeping a product must be for the purpose of doing any of the things recited.
[55] Section 13(1).
[56] Section 123.
Another matter raised at the resumed hearing is whether section 223(9) can apply to a person who is not in need of protection or compensation. This argument was put in the context of an exploitation that was covered by a licence at the time that it was carried out. For reasons similar to those discussed in the preceding paragraph it is clear that such a person has exploited the invention. It follows that Sandoz are not precluded from applying under section 223(9). The subjective aspects of their behaviour, including whether the actions are covered by a licence, can be taken into account under the discretionary aspect of regulation 22.21, and that is a matter that I will consider later.
b) What is the invention?
It is the claims that define an invention, and in this case claim 1 reads:
"(+)-1-(3-dimethylaminopropyl)-1-(4'-fluorophenyl)-1,3-dihydroisobenzofuran-5-carbonitrile and non-toxic acid addition salts thereof."
and claim 3 reads:
"A pharmaceutical composition in unit dosage form comprising as an active ingredient, a compound as defined in claim 1, together with a pharmaceutically acceptance [sic] carrier or excipient."
It is not in dispute that claim 1 is directed to the (+)-enantiomer of citalopram (i.e. escitalopram), and that an oxalate is a non-toxic acid addition salt.[57] For the purposes of this decision it is relevant to consider whether the invention is the (+)-enantiomer free of the (-)-enantiomer, or whether the invention includes the (+)-enantiomer containing some amount of the (-)-enantiomer. It is important to understand that it is not possible to separate racemic citalopram into the individual enantiomers in 100% purity:
"it was common ground that it is not possible to separate a racemic mixture into 100% pure (+)-enantiomer and (-)-enantiomer."[58]
[57] The oxalate salt is relevant because the Esitalo products contain the oxalate salt of escitalopram; Sharkey at [38].
[58] Jagot decision at [70].
In the 2009 Full Court decision Bennett J said that:
"claim 1 is to the pure or isolated or separated (+)-enantiomer but should not be construed to limit the purity of the (+)-enantiomer to at least 95% purity, let alone to 95% enantiomeric purity. In the absence of a qualification of purity expressed in the claim or made clear in the specification, none should be imported."[59]
[59] 2009 Full Court decision at [160].
Middleton J agreed with the conclusions of Bennett J, and added the observation:
"The mere reference to the (+)-enantiomer in claim 1 without more indicates that it is the separated or the isolated enantiomer that is claimed."[60]
[60] 2009 Full Court decision at [252].
In the 2015 Full Court decision this was repeated:
"the expressions such as 'separated or isolated or pure' did not import any concept of degree of purity".[61]
[61] 2015 Full Court decision at [96].
I am satisfied that the invention defined by claim 1 (and also claim 3), properly understood, is directed to the (+)-enantiomer in pure, isolated or separated form. Arbitrary values of purity (e.g. at least 95%) cannot be read into the claim. The concept of pure, isolated or separated permits the inclusion of trace, trivial or insignificant amounts of the (-)-enantiomer.[62]
[62] Jagot decision at [113].
c) What is the relevant act that was not done in time?
The relevant act was the filing of an application for an extension of term of the patent based on the goods Cipramil. The application for an extension of term should have been filed by 26 July 1999.[63]
d) Has there been an extension of time of more than three months for filing the application for an extension of term?
[63] Section 71(2)(c), this being 6 months after the commencement of the current extension of term scheme introduced by the Intellectual Property Laws Amendment Act 1998: Ayers decision at [57].
An extension of time for filing an application for an extension of term based on Cipramil was filed on 12 June 2009. The extension was for a period of 121 months[64] (i.e. more than three months). The extension was granted by the Commissioner on 1 June 2011, and this decision was upheld following appeal.[65]
[64] Ayers decision at [57].
[65] The decision was ultimately upheld in the 2014 High Court decision.
e) When was the extension of time advertised?
The application for extension of time was advertised in the Official Journal on 23 July 2009.
f) Did Sandoz exploit, or take definite steps to exploit, the invention before 23 July 2009?
There are two issues that need to be considered. First, there is a question of whether Sandoz exploited the invention. Second, there is a separate question of whether Sandoz took definite steps by way of contract or otherwise to exploit the invention. Before looking into the facts it is worth recalling the definition of exploit, already quoted above:
"make, hire, sell or otherwise dispose of the product, offer to make, sell, hire or otherwise dispose of it, use or import it, or keep it for the purpose of doing any of those things"[66]
Did Sandoz exploit the invention before 23 July 2009?
[66] Schedule 1 of the Act.
At the first day of the hearing Lundbeck made much of the fact that Sandoz do not concede that they exploited the invention. However, despite the lack of a clear concession it is open to me to make a finding based on the facts that are in evidence. Deputy Commissioner Spann noted that "the alleged acts of exploitation appear factually straightforward (at least prima facie)."[67] Sandoz admits that it first imported Esitalo products from India on 27 May 2009,[68] and that it imported, offered to sell, sold and supplied its Esitalo products from 15 June 2009 onwards.[69] All of these dates are before 23 July 2009. Sandoz also admits that these products contain escitalopram oxalate as the active pharmaceutical ingredient.[70] It also appears to be accepted that the Esitalo products contain the (‑)-enantiomer of citalopram at between 0.1 and 0.8%.[71] Does this amount of the (‑)-enantiomer meets the implicit purity requirements of claim 1? Previously I stated that claim 1 is directed to the (+)-enantiomer in pure, isolated or separated form. I consider that a 0.1 to 0.8% impurity is, for practical purposes, the (+)-enantiomer in pure, isolated or separated form. I am satisfied that there was importation and sale of the invention before 23 July 2009, and both of these acts amount to exploitation.[72] Lundbeck has conceded that the importation was an act of exploitation (although arguing that it is insufficient on other grounds).[73] Lundbeck pointed out that the importation was authorised by Lundbeck.[74]
[67] Spann decision at [38].
[68] Bombardier at [40].
[69] Sandoz submissions at [80].
[70] Sandoz submissions at [81].
[71] Sandoz submissions at [83].
[72] This accords with the finding of infringement in the Jagot decision at [115].
[73] Lundbeck supplementary submissions at [20(c)].
[74] Lundbeck supplementary submissions at [20(c)].
The definition of "exploit" states that it includes "import", and contains no suggestion that authorisation is relevant to exploitation. On the contrary, section 13 states that the patentee has the right to "authorise another person to exploit the invention", making it clear that an act that is authorised by the patentee is properly characterised as an exploitation. I conclude that Sandoz exploited the invention by importation and sale before 23 July 2009.
Did Sandoz take "definite steps" to exploit the invention before 23 July 2009?
The argument here was essentially that the steps leading up to the launch and sale of the Esitalo products should be regarded as "definite steps". This analysis is separate to the finding that there was importation and that the importation was an exploitation.
In HRC Deputy Commissioner Herald was prepared to find "definite steps" on the basis of a "paucity of direct evidence".[75] However, I do not understand that to mean that a paucity will always suffice. Sandoz referred to the steps that it undertook prior to the launch of the Esitalo products in June 2009. Some of those steps were:
·obtaining inclusion in the ARTG (on 23 October 2008);
·obtaining listing on the PBS (on 1 May 2009);
·developing packaging;
·developing marketing; and
·importing the Esitalo products from India (from 27 May 2009 onwards).
[75] HRC at page 125.
The subsection uses the expression "definite steps" rather than just "steps". Lundbeck pointed out that the expression "definite steps (contractually or otherwise) to exploit the product" is used in section 119 of the Act, and that guidance can be gained from the interpretation of that provision. In Welcome Real-Time SA v Catuity Inc[76] Heerey J referred to UK authorities that noted that production of prototypes was not enough, nor was contemplation of manufacturing. For instance, in Lubrizol Corp v Esso Petroleum Co Ltd[77] Aldous LJ said:
"It follows that there must be something more than preparations to do an infringing act. What more will depend upon the nature of the product and all the surrounding circumstances, but in all cases the preparations must be so advanced as to be about to result in the infringing act being done. That was not the position in this case. There had been manufacture in the United States of America and a program of technology transfer to the United Kingdom. Batch Zero had been shipped into the United Kingdom and samples had been supplied. Management had started to plan for manufacture, but interim site approval was delayed … It follows that if the patent had been valid, section 64 [the provision similar to section 119 but more favourable to infringers] would not have provided a defence."
[76] [2001] FCA 445, 51 IPR 327 (Catuity).
[77] [1998] RPC 727 (Lubrizol) at 770-771.
Catuity itself provides another helpful example:
"Assume a patented product consisting of components A, B and C. Immediately before the priority date an infringer: has drawings depicting the product; has actually made A; has on his premises the raw materials for component B; and has ordered the raw materials for component C. It can then be said that the infringer had taken definite steps to make that product. Conversely, it would not be sufficient that immediately before the priority date, the infringer has made A, has received the raw materials for B but is investigating whether C, D or E would be the preferable final component."[78]
[78] Catuity at [91].
Applying these principles, Heerey J found that there were no definite steps in a situation where:
"the design of the respondent's system was only 'substantially completed' by 21 January 1996. The fact that the respondents' system did not become operational until 7 months later confirms the impression that what the respondents were doing as at the priority date was engaging in the ongoing development of a system."[79]
[79] Catuity at [100].
Sandoz submitted that it was not necessary that the steps undertaken were irrevocable.[80] I consider that the cases show that "definite steps" are steps that would inevitably lead to exploitation, are so advanced that exploitation is imminent, and the remaining steps cannot reasonably be discontinued. Importation, as distinct from manufacturing within the jurisdiction, is not a "definite step" to exploit by sale. In the present case the steps undertaken by Sandoz involved importation and not the manufacture of Esitalo within Australia. The activities of ARTG inclusion, PBS listing, marketing and packaging do not advance the case. The steps undertaken seem quite analogous to those in Lubrizol, where the steps were not sufficient to satisfy section 64 of the UK Act. I do not consider that the steps undertaken by Sandoz are sufficient to amount to "definite steps" to exploit by sale.
Conclusion
[80] Sandoz reply submissions at [13].
I conclude that prior to 23 July 2009 there was exploitation by the importation and sale of Esitalo products, but the preparatory steps did not amount to definite steps to exploit by sale. I will only consider the exploitation by importation and sale in the remainder of this decision.
g) Did the patent cease?
In the present case there is an interesting question whether the patent ceased. Lundbeck submits that the patent expired rather than ceased.[81] This question was considered in the Beach decision, where it was found that "ceasing" in section 223(9) includes expiry:
"In the context of s 223(9) and reg 22.21, 'ceasing' refers to a patent ceasing to be in force, a concept which includes both 'ceasing' in a narrow sense and expiry of the term of a patent."[82]
[81] Lundbeck submissions at [18].
[82] Beach decision at [131].
This led the Court to make the following declaration on 3 February 2017:
"A declaration that each of the applications for licences to exploit an invention filed by the second to fifth respondents in relation to the Patent are valid."
and the following declaration on 14 February 2017:
"A declaration that each of the applications for licences to exploit an invention filed by the second to fifth respondents in relation to the Patent are not invalid by reason of any matter alleged in the applicant's originating application."
Recently Jagot J reached the following conclusion:
"in the scheme of s 223(7) to 223(10), a patent does not 'cease' because it expired and is not 'restored' if its term is extended."[83]
[83] Jagot decision at [157].
Lundbeck submitted that the Jagot decision is binding on me, and Sandoz submitted that the Beach decision is binding. In the alternative Sandoz urged me to find that "cease" has a broad meaning in section 223(9) and a narrow meaning in section 223(10), and as a consequence Jagot J found that the patent did not cease for the purposes of section 223(10) only.[84] This would allow the Beach decision and the Jagot decision to each operate in their own space. I believe that Jagot J was of the view that this was not the case:
"I am aware that this conclusion is not reconcilable with Beach J's reasoning in respect of s 223(9) in [2017] FCA 56 to the extent that Beach J concluded at [131] that the 'ceasing of the patent' in s 223(9) includes the expiry of the patent."[85]
[84] Sandoz supplementary reply submissions at [6(b)].
[85] Jagot decision at [158].
Looking at the two authorities, Beach J gave the term "cease" a broad construction in line with the normal meaning of the word.[86] Jagot J considered the interaction of the various parts of section 223 and concluded that a broad construction led to difficulties in the operation of the section as a whole.[87] For the reasons that appear below it is not necessary to resolve this tension.
[86] Beach decision at [130].
[87] Jagot decision at [157].
Lundbeck, Sandoz and the Commissioner were parties to the proceedings that led up to the Beach decision, and the declarations relate to the application for a licence that I am considering. The declarations made by Beach J determine between all parties that the applications for licences are not invalid. The declarations are based on a finding that the patent ceased, and it is implicit in the declarations that the applications for licences are valid because of this. It is not reasonable to read the declarations as silent on whether the patent ceased. Also, I do not understand the declarations to go further and determine that the applications for licences must succeed without further consideration of matters that were not considered by the Court (such as the discretionary considerations). I am bound to treat the patent as ceased after 13 June 2009.
Sandoz also referred to Regency Media Pty Ltd v MPEG LA, LLC,[88] where the expression "ceased to be in force" in section 145 was understood to include expiry as well as ceasing. However, that is both a different expression, and a different context, which I consider is of little assistance in the present case.
[88] [2014] FCAFC 183 at [13], [35].
For the purposes of this decision I am bound to find that the patent ceased. The consequence of this conclusion is that I will consider the remaining issues in relation to both the ceasing of the patent and the failure to file the application for extension of term in time.
h) Did Sandoz have knowledge of the status of the patent at all relevant times?
The evidence shows that Sandoz knew the status of the patent at all relevant times.
i) Was the exploitation "because of" the failure to file the application for extension of term of the patent in time, or the ceasing of the patent?
The expression "because of" appears in section 223(2), and in that context has been considered in other decisions. In Apotex Pty Ltd v Commissioner of Patents[89] the AAT provided a convenient summary of the law:
"In Kimberly-Clarke, Jenkinson J held that it is sufficient that an error or omission contributed to cause the failure to lodge the notice. He quoted with approval from Lyons v Registrar of Trade Marks that the phrase (as it then was) 'by reason of' 'implies a relationship of cause and effect but it is a relationship which may be indirect' (at p 509)."
[89] [2008] AATA 226, 101 ALD 368 at [14].
Lundbeck referred to American National Can Company v Cryovac Inc[90] to assert that a deliberate decision could break the causal link between an error and the failure to do an act. I accept that is correct. However, National Can does not establish which deliberate decisions are sufficient to break the causal link.
Failure to file the application for extension of term in time
[90] (2000) 48 IPR 372 (National Can).
I consider that the question is in two parts. First, did the failure to file the application for an extension of term based on Cipramil in time contribute (either directly or indirectly) to the exploitation, even though there may have been other causes? If that question is answered in the positive, the second question is whether the chain of causation has been cut by any intervening events. The parties referred to the detailed events that took place in 2009, and I will discuss those events below. However, it seems self-evident that if an application for an extension of term based on Cipramil had been filed in 1999 then the situation in 2009 would have been very different. The absence of an extension of term based on Cipramil and the potential that the extension based on Lexapro was invalid would have given rise to a reasonable belief that it was likely that the patent would cease in June 2009, and this belief would have been part of Sandoz' planning to launch. It defies credibility to believe that the failure to file an application for an extension of term based on Cipramil was an irrelevant event and not a cause of Sandoz' actions.
Lundbeck suggested that the primary cause of the importation was the licence under the Sandoz settlement agreement.[91] The difficulty with this submission is that the start date of the licence was not certain until 13 June 2009, which was after the importation had happened. Consequently, it is hard to see how this could have been a motivation (let alone a primary motivation) for Sandoz on or about 27 May 2009. Lundbeck also referred to Mr Sharkey's belief that Sandoz had the benefit of a licence. However, this belief was not shared by the relevant decision makers in the parent company.[92]
[91] Lundbeck supplementary submissions at [7].
[92] Jagot decision at [339].
The situation on or about 27 May 2009 was considered by Jagot J:
"On 26 May 2009 Lundbeck's lawyers wrote to Mr Sharkey of Sandoz noting the matters of which Lundbeck was aware and that the Sandoz settlement agreement 'does not deal with the situation where the date on which the Patent will expire is not known with certainty'. Lundbeck's solicitors proposed an exchange of undertakings. Mr Sharkey told Lundbeck's lawyers that Sandoz had already imported Esitalo. In the letter of 28 May 2009, undertakings were given."[93]
[93] Jagot decision at [305].
It is clear that the importation was not caused by the undertakings of 28 May 2009, as the importation predated those undertakings. The importation was a deliberate decision that took into account commercial risks. The timing of the importation reflected the imminent expiry of the normal 20 year term of the patent. However, the term had been extended based on Lexapro, and proceedings relating to that extension were not yet finally determined. On the other hand, as a consequence of the litigation history Sandoz had good reason to think that the Lexapro extension was invalid and the patent would expire at the end of the 20 year term. At the time that the importation took place Lundbeck had not filed an application for an extension of term based on Cipramil. Given the potential invalidity of the Lexapro extension of term and the absence of a Cipramil extension of term, it is a fair conclusion that in May 2009 the failure to file an application for an extension of term based on Cipramil was a cause of the importation of the Esitalo product.
In relation to the exploitation by sale, the decision to launch the Esitalo products involved a number of considerations, including a calculated commercial decision.[94] Similar considerations to what I said in relation to the importation of the Esitalo products also apply to the preparation for the launch of the Esitalo products. However, prior to the launch Lundbeck filed their application for an extension of term based on Cipramil. This does not change the fact that the launch date – after the expiry of the normal 20 year term of the patent – was selected in part because of the failure to file the application for an extension of term based on Cipramil in time.
[94] as mentioned in the AAT decision at [108].
I am satisfied that the exploitation, both by importation and sale, was "because of" the failure to file the application for an extension of term based on Cipramil in time.
Ceasing of the patent
I consider that the question is in two parts. First, did the ceasing of the patent contribute (either directly or indirectly) to the exploitation, even though there may have been other causes? If that question is answered in the positive, the second question is whether the chain of causation has been cut by any intervening events. The importation in May 2009 took place before the ceasing of the patent. It follows that the importation could not have been "because of" the ceasing. The sale of the Esitalo products took place after 13 June 2009. The evidence is clear that the launch date for the Esitalo products – after the ceasing of the patent – was selected in full knowledge of the date on which the normal 20 year term of the patent expired, and with the intention that it was outside the normal 20 year term.[95] Further, the launch took place after the Full Court had found that the extension of term based on Lexapro was invalid. It is completely clear that the ceasing of the patent at the end of the normal 20 year term of the patent was a cause of the sale of the Esitalo products. I am not aware of any intervening events that could be seen as breaking the chain of causation. I am satisfied that the exploitation by sale was "because of" the ceasing of the patent.
[95] The evidence is extensive that the ceasing (or expiry) of the patent was a central consideration. Simple examples of the importance of the date are O'Connell 1 at [23] and Sharkey at [20].
j) Did Sandoz exploit the invention during the period of time extended?
Sandoz submitted that it was not necessary that the exploitation take place during the period of time extended. Rather, they argued that the requirement is that the exploitation take place before the application for extension of time was advertised. Sandoz drew attention to the Beach decision to support their argument:
"In summary, the correct construction of s 223(9) and reg 22.21 is that a person may be granted a s 223(9) licence where at any time before the extension of time was advertised they exploited (or took definite steps to exploit) the invention concerned and those steps have the relevant nexus to one or more of the s 223(9) criteria, namely, the failure to do the relevant act within the time allowed or the lapsing of a patent application or the ceasing of a patent"[96]
[underlining added; italics in the original][96] Beach decision at [117].
His Honour reached this conclusion in a part of the decision dealing with the construction of the concluding words of section 223(9).[97] I consider that His Honour was simply using the words as they appear in section 223(9) and was not seeking to decide the issue raised by Sandoz in the present matter. Section 223(9) refers to protection or compensation applying to persons who exploited the invention "before the day on which the application for extension of time is advertised", but regulation 22.21 only applies to persons who exploited the invention "within the period of time extended". The plain meaning of the provisions, read as a whole, is that protection or compensation may be provided to persons who satisfy section 223(9), but a remedy in the form of a licence is only available to persons who satisfy regulation 22.12.
[97] Beach decision at [89] – [93] sets out the question and the alternative constructions.
The period of time extended ran from 26 July 1999 to 12 June 2009. The exploitation by importation took place on 27 May 2009, which is within the period of time extended. The exploitation by sale took place after 12 June 2009, and consequently is not within the period of time extended. The exploitation by sale does not satisfy this requirement and need not be further considered in this decision. I am satisfied that Sandoz exploited the invention by importation during the period of time extended. Since the exploitation by importation was not dependent on the ceasing of the patent (as the importation took place before the patent ceased), it follows that the ceasing aspect of the case need not be further considered.
k) If all of the criteria arising from section 223(9) are satisfied, is there a discretion whether to grant a licence?
Regulation 22.21(5) states that the Commissioner must grant a licence "if reasonably satisfied that the application should be granted". It was accepted in HRC that these words create a broad discretion whether to grant a licence:
"Mr Anese contends that if I am satisfied that the conditions for the grant of a licence [as set out in Reg 22.21(3)] have been made out, I must necessarily be reasonably satisfied under subreg (5) that the application should be granted. I do not agree. In my view the grant of a licence under Reg. 22.21 necessarily entails the exercise of discretionary powers. And there is nothing explicit in subreg (5) to limit the discretionary considerations to the specific requirements of subreg (2). Rather, it seems to me that subreg (5) properly allows the Commissioner to have regard to all the circumstances in deciding whether a licence should be granted."[98]
[98] HRC at page 125.
I agree with the Deputy Commissioner's conclusion. There is a broad discretion whether to grant a licence.
l) What matters are relevant to the exercise of the discretion and what is the outcome of the balance of those considerations?
In HRC Deputy Commissioner Herald set out the sort of matters that he considered relevant to the exercise of the discretion:
"By way of example, I think if an applicant for a licence was implicated as a causative agent in the ceasing of a patent, that fact would be relevant to whether a licence should be granted. Also, noting that s.223 can relate to acts that do not result in an application lapsing or patent ceasing (ie acts that do not necessarily affect all rights that flow from the patent), I anticipate that the nature of the act that was not done may have a bearing on whether or not the Commissioner is reasonably satisfied that a licence should be granted in the circumstances of the particular exploitation. Other circumstances might be whether the patentee or their licencees have ceased working the invention, and whether the parties have already entered into a commercial agreement on the subject."[99]
[99] HRC at page 125 – 126.
Lundbeck urged me to give great weight to Sandoz' knowledge that there was a risk in launching the Esitalo products. In general it is inappropriate to give excessive weight to a single consideration. For instance, in relation to the power to grant extensions of time, Burchett J said:
"The idea that such a broad discretion can validly be reduced by a decision maker to an insistence upon 'imperative' compliance with particular requirements has repeatedly been rejected by the courts."[100]
[100] Ferocem Pty Limited v Commissioner of Patents [1994] FCA 981, (1994) AIPC 91-057 at [8].
Instead, the exercise of a broad discretion, such as in the present case, must take proper account of all factors that can be discerned, both explicitly and implicitly, from the Act:
"The discretion is conferred by the Act in the widest terms. It can only be read down by reference to the subject matter, scope and purpose of the statute".[101]
"What factors a decision-maker is bound to consider in making the decision is determined by construction of the statute conferring the discretion. … If the relevant factors – and in this context I use this expression to refer to the factors which the decision-maker is bound to consider – are not expressly stated, they must be determined by implication from the subject matter, scope and purpose of the Act."[102]
[101] Australian Broadcasting Tribunal v Bond Corporation Holdings Ltd (1989) 86 ALR 424 at 432.
[102] Minister for Aboriginal Affairs v Peko-Wallsend Ltd [1986] HCA 40; (1986) 162 CLR 24 at [15].
Considering the circumstances of this case, I consider that it is relevant to have regard to the nature of the act that Lundbeck did not do in time, the reasons why Lundbeck did not do the act in time, how Sandoz came to exploit the invention, the interests of both Lundbeck and Sandoz in relation to the licence, and the public interest in this matter. The parties also referred to a number of other matters that do not fit under these headings, and I will consider them as well.
The nature of the act that was not done
The act that was not done is the filing of an application for extension of term based on Cipramil. However, an extension of term based on Lexapro was filed on 16 September 2003 and granted by the Commissioner.[103] The Lexapro extension was subsequently removed from the Register.[104]
[103] The term of the extension was adjusted by the Commissioner under regulation 10.7(7) to reflect reliance on Cipramil: the first Barker decision at [35].
[104] 2009 Full Court decision at [247]. The High Court refused leave to appeal this decision.
There was some discussion of the extent to which section 223(9) can apply in the circumstance of an extension of time to file an application for an extension of term in light of the backdating effect of section 79. Aside from the issue of whether section 79 is subject to section 223(9) (discussed later) the parties were not in disagreement that section 223(9) can apply in the present situation – provided the criteria of section 223(9) are met.[105]
Why wasn't the act done in time?
[105] Lundbeck final submissions at [13], and Sandoz final submissions at [4].
Lundbeck delayed filing an application for an extension of term based on Cipramil until as late as possible. The AAT commented on Lundbeck's motives as follows:
"The applicants contend that Lundbeck acted for purely strategic commercial reasons in delaying the making of an application for an extension of time between the decision of Lindgren J and the Full Federal Court's decision in June 2009.
We consider it likely that commercial considerations were taken into account but, in our view, this does not alter the fact that Lundbeck reasonably maintained the view over this period that it did not have to submit an application and acted consistently with this view and considered advice from Corrs as to its options."[106]
[106] AAT decision at [97] – [98].
Sandoz pointed out that Lundbeck did not indicate to them that there was a possibility that they would seek an extension of time to make a new application for an extension of term. As late as 28 May 2009 correspondence between Lundbeck and Sandoz made no mention of such a possibility. This is despite the fact that Lundbeck had informed a different party[107] of their intention if the Full Court decision found that the extension of term was not valid.
[107] Letter to Apotex Pty Ltd dated 4 June 2009.
Lundbeck's behaviour was clearly designed to maintain uncertainty for Sandoz and the public for as long as possible. Jagot J found that Lundbeck's actions were "not unreasonable … in the circumstances".[108]
How did Sandoz come to exploit the invention?
[108] Jagot decision at [335].
Sandoz knew that Lundbeck had obtained an extension of term based on Lexapro (which was later found to be invalid and was removed from the Register). Sandoz was also aware of the extensive litigation history, and that Lundbeck were heavily committed to protecting and enforcing the patent. Sandoz was well aware of serious commercial risks associated with the launch of the Esitalo products. Against this backdrop, Sandoz made an informed decision to import and launch the Esitalo products.
The importation by Sandoz was covered by a licence created by the Sandoz settlement agreement, but this was not known to either of the parties at the time because of the uncertainty around when the licence came into effect. The settlement agreement was discussed by Jagot J:
"Sandoz had a licence under cl 3(2) from 1 May 2009 (which excluded sale or supply) and a licence under cl 3(1) (which was unconfined) from 31 May 2009. Lundbeck was right in its letter of 26 May 2009 that the Sandoz settlement agreement 'does not deal with the situation where the date on which the Patent will expire is not known with certainty'. As such, Sandoz could not know if it did or did not have a licence until 13 June 2009 at the earliest. In the event, because the 144 patent reached the end of its term and expired on 13 June 2009, Sandoz did have a licence to do what it did in and leading up to 28 May 2009."[109]
[109] Jagot decision at [307].
The importation of Esitalo was not an infringement, and at that time there was no application for an extension of time or for an extension of term based on Cipramil. Sandoz' behaviour in importing the Esitalo products was not unreasonable.
Sandoz' subsequent behaviour in launching the Esitalo products falls into a different category. Delegate Ayers noted that Sandoz (amongst others) adopted a calculated strategy:
"this was a deliberate strategy by the opponents with a known commercial risk."[110]
[110] Ayers decision at [85].
Similar views were expressed by the AAT and Jagot J.[111]
[111] AAT decision at [105] and [108]; Jagot decision at [337], [340] and [341].
The interests of Lundbeck and Sandoz in the licence
100. A licence would provide Sandoz with a defence in relation to the infringement action brought by Lundbeck. In this regard their interests are largely equivalent and off-setting.
The public interest
101. The public interest in relation to this matter is difficult to identify. The extended term of the patent has now expired, so a licence would only operate in relation to acts carried out many years in the past. I feel that in the unusual circumstances of this case the public interest is a minor consideration.
Other considerations
102. Lundbeck submitted that a licence would be a disproportionate reward in the circumstances. I agree that a licence in relation to a commercially successful drug is extremely valuable. The basis for the licence would be the importation in May 2009.
103. Lundbeck also questioned whether a licence is necessary. As the extended term of the patent has expired the licence will not provide any protection for future actions by Sandoz, and the licence will only apply to actions that have already been carried out without the necessity for a licence. However, the licence would have commercial value in relation to the infringement that has been found.[112]
[112] Jagot decision at [365] concluded that Sandoz had infringed, and none of the defences had been established.
104. Lundbeck also submitted that the importation cannot found a licence, because "it occurred during the original term of the Patent and the Court has found that it was authorised by Lundbeck."[113] I note that the authorisation provided by Lundbeck was:
[113] Lundbeck supplementary submissions at [20(c)].
"pending the outcome of the Full Court appeal, Sandoz may import into Australia pharmaceutical products containing escitalopram on the condition that such importation is only into its own possession and not for further distribution."[114]
[114] Jagot decision at [306].
105. This was in the context of an undertaking by Sandoz that:
"unless the finding of the Full Court of the Federal Court of Australia is to the effect that Australian Patent 623144 expires on 13 June 2009, it will not (without first providing Lundbeck at least 5 days written notice) promote, market, distribute, offer to sell, or sell any pharmaceutical product containing escitalopram."[115]
[115] Jagot decision at [305].
106. I interpret Lundbeck's point to be that the exploitation was limited to importation only and that it was not permitted to launch the products. This would suggest that a licence to exploit the invention by selling would be disproportionate to an exploitation that was limited to importation alone.
107. Finally, I note that there is a question whether a licence is futile given that Jagot J has already declared that there was infringement by Sandoz and made orders quantifying the damages to be paid by Sandoz. In light of the appeal of the Jagot decision it cannot be said that there would be no utility in a licence. I will proceed to grant a licence if I am otherwise satisfied that it should issue.
Balance of discretionary considerations
108. The balancing of a range of considerations is not an exercise that can be carried out according to a mathematical algorithm. It is not sufficient to say, as Sandoz suggested, that there should be mutuality between the lengthy extension of time given to Lundbeck and the licence sought by Sandoz.[116] What is necessary is to consider and weigh all relevant considerations and expose the reasoning process that lies behind the conclusion. I start by noting that the discretionary considerations are only relevant if a person has satisfied all the mandatory criteria set out in the Act and Regulations. As noted in the HRC decision, discretionary matters are considered to determine whether a licence should otherwise be refused:
[116] Sandoz supplementary submissions at [45].
"having found that the applicant 'took definite steps …' in the relevant time period, I am not aware of any circumstance in the present case that would reasonably lead me to not granting a licence."
109. Turning to the behaviour of the parties, it is not in dispute that both have acted out of self-interest:
"All entities involved appear to have taken every opportunity, at every stage, to protect their own positions. None is in a position to criticise another for doing so."[117]
[117] Jagot decision at [342].
110. However, the fact that the behaviour of each party is open to criticism does not mean that they are simply off-setting and do not need to be considered. This matter arose because Lundbeck failed to file an application for an extension of term based on Cipramil within the time set down in the Act, so that it was likely that the patent would expire at the end of the normal 20 year term of the patent. Lundbeck waited until the end of the normal term of the patent to file the application for extension of term, and at that time asked for a lengthy extension of time of 10 years. Sandoz planned to launch a product when the normal term of the patent expired. Sandoz imported product in preparation for the launch. The importation was protected by a licence, although this was not known with certainty to any of the parties at the time. Sandoz did launch the Esitalo products and continued to sell those products. The sale of the Esitalo products was an infringement of the patent. The extension of time and the extension of term based on Cipramil were not finalised until after the extended term had expired.
111. While the actions of Lundbeck were not unreasonable, it does not follow that Sandoz' responses were unreasonable. On the contrary, I consider that Sandoz behaved reasonably in importing the Esitalo products as they had no positive indication from Lundbeck that an extension of term based on Cipramil would be filed. The launch of the Esitalo products in an environment where a lengthy extension of time was pending was not unreasonable. I am not satisfied that the behaviours of Sandoz disentitle them to the grant of a licence.
112. I turn now to consider whether Sandoz needs protection in the form of a licence. The importation of the Esitalo products in May 2009 was covered by a licence, so there is no need for protection for this act. However, it is artificial to divorce the importation from the sale of the products, and the sale of the products was not covered by the licence created by the settlement agreement. If there were any doubt that there is a role for protection it can be seen in the fact that there are infringement proceedings between the parties.
113. Next, I turn to Lundbeck's point that the exploitation was limited to importation only and that it was not permitted to launch the products. As I said in the previous paragraph, it is artificial to divorce the importation from the sale. I do not consider that this consideration adds anything to Lundbeck's case.
114. Finally, I agree with Lundbeck that the licence would be an extremely valuable right. In this case it is now clear that the damages in relation to the infringement run into millions of dollars. While this is a large number, the question to answer is whether this is an excessive benefit. I have no logical basis on which to conclude that it is excessive.
115. I conclude that the discretionary considerations do not reasonably lead me to not grant a licence.
m) On what terms should a licence be granted?
116. There has only been one reported decision in which the Commissioner has granted a licence.[118] In HRC Deputy Commissioner Herald proceeded on the basis that restoration of a ceased patent is not a complete restoration of rights. This led to the conclusion that a licence is between the Commissioner and the applicant, and the patentee is not a party to the licence:
[118] the HRC case.
"The right the subject of the licence does not belong to the patentee, because of the restoration. An application for a licence is not an application to adjudicate a licence as between the parties.
Consistent with this interpretation, I observe that Reg 22.21 specifies that the third party applies to the Commissioner for the grant of a licence, and the Commissioner grants the licence. That is, the licence is between the third party and the Commissioner. It is NOT between the third party and the patentee."[119]
[119] HRC at p 127.
117. Lundbeck submitted that this conclusion was wrong, and that the patentee must be a party to the licence.[120] Sandoz submitted that the regulation identifies the parties to the licence as it identifies who grants it (the Commissioner) and to whom it is granted (the person applying for it, here Sandoz).[121]
[120] Lundbeck final submissions at [18] – [22].
[121] Sandoz final submissions at [5].
118. It is probably better to say that section 223 restores all rights to the patentee, including the rights that are the subject of a licence under regulation 22.21. Similarly, where section 79 is involved the patentee retains the rights that are the subject of a licence under regulation 22.21. Consequently, the patentee has the power to voluntarily grant a licence on commercial terms in relation to those rights if they wish.
119. Regulation 22.21 does not give the Commissioner the power to direct the patentee to grant a licence. Instead the Commissioner is given the power to grant a licence herself. This does not imply that the Commissioner has acquired those rights from the patentee, or that the patentee has surrendered those rights. What it means is what it says – in limited circumstances Parliament has given the Commissioner the power to grant a licence to the third party. The licence is granted by the Commissioner and is not an agreement between the patentee and the third party. While the patentee clearly has a significant interest in the terms of the licence, they are not a party in the normal sense.
120. In HRC the Deputy Commissioner went to considered three issues:
·can the patentee require a royalty – the Deputy Commissioner found that it could not;
·could the licence be restricted in scope – the Deputy Commissioner assumed that the scope of the licence could be less than the whole of the patent; and
·what are the general terms of the licence – the Deputy Commissioner found that the licence commenced on the date the patent was restored, lasted for the term of the patent and cannot be assigned or sublicenced.
121. I will briefly consider each in turn. First, the parties made no submission in relation to royalties. I do not have a basis to find that a royalty should be a term of the licence. Second, the scope of the licence must be considered. In HRC Deputy Commissioner Herald formed the view that a licence might be restricted in relation to the embodiments of the invention. In the present case I can see no reason to entertain such a term. Finally, in relation to the period of the licence it is clear that the licence should only be provided for the period during which it is required. As section 223(10) does not apply in light of the Jagot decision, the licence is required from the date that the normal 20 year term of the patent ended and runs until the date that the patent expired at the end of its extended term.
122. Deputy Commissioner Herald also found that the licence should be a personal licence, in the sense that:
·it would belong to the applicant company;
·it could be transferred with the business if it changed hands; but it could not be assigned or otherwise transferred; and
·the licensee could not sublicence under the licence.
123. I consider that these conclusions are equally applicable to the present case. I am satisfied that the terms of the licence should be:
1. The licence commences on 14 June 2009 and continues until the expiration of the term of the patent on 9 December 2012.
2. The licence is personal to Sandoz Pty Ltd in the sense that:
a)it belongs to that company;
b)it may be transferred with that company if that company changes hands by acquisition or merger, but it cannot be assigned or transferred; and
c)it cannot be sublicenced.
Conclusion
I am satisfied that Sandoz exploited the invention by importation of the Esitalo products on 27 May 2009. The importation was because of the failure to file an application for extension of term based on Cipramil within time. Having regard to all of the circumstances I am reasonably satisfied that the application for a licence should be granted. Consequently:
a) pursuant to regulation 22.21(5) I must grant a licence;
b) the terms of the licence shall be as set out above; and
c) pursuant to section 187 and regulation 19.1 details of the licence are to be entered in the Register of Patents.
Costs
125. Sandoz has been successful in the opposition. I see no reason to depart from the usual practice that costs are awarded in accordance with the event. I will award costs against Lundbeck.
Dr S.D. Barker
Deputy Commissioner of Patents
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