New York University v Nissin Molecular Biology Institute, Inc

[1994] APO 44

official notice

decision of a deputy commissioner of patents

Application        :    No. 82287/91 in the name of NEW YORK UNIVERSITY

Title:    Heterohybridomas Producing Human Monoclonal Antibodies to HIV-1

Action:    Request under Regulation 3.25 by NISSIN MOLECULAR BIOLOGY INSTITUTE, INC.

Decision:    Issued            . 

Abstract:    The Commissioner will make the Certification referred to in Rule 11 of the Budapest Treaty for the release of a sample of a microorganism, provided one or other of the following sets of conditions are met.

1.The release is to be effected to an independent third party on the following conditions:

a.the sample is to be released to an independent third party who is:

i.a skilled addressee without an interest in the invention; and

ii.nominated by the requestor,

with the applicant being entitled to be heard on whether or not the nominated person is a skilled addressee without an interest in the invention;

b.the third party must make the undertaking required by regulation 3.25(4)(c); and

c.the third party must undertake to destroy the hybridoma once the experiments requested by Nissin have been completed.

OR

2.The requestor provides a security for a breach of the undertaking referred to in regulation 3.25(4)(c), to the value of A$6 million. That security is required to be:

a.in a form, and held in a manner, agreed to as between the parties; or

b.filed with the Commissioner of Patents, and in a form agreed to by the Commissioner.

Subject to any appeal, any such security is to be provided within 6 months of the date of this decision.

patents act 1990

decision of a deputy commissioner of patents

Re:Patent Application No. 82287/91 by NEW YORK UNIVERSITY, and a request under Regulation 3.25 by NISSIN MOLECULAR BIOLOGY INSTITUTE, INC.

background

Patent application 82287/91 was filed under the Patent Cooperation Treaty as PCT/US91/04304, on 26 December 1991. The application designated Australia, and was published on 7 January 1992.

On 1 June 1993, Nissin Molecular Biology Institute, Inc. (hereafter referred to as NMBI) filed a request under regulation 3.25(1) for the Commissioner to grant the certification referred to in Rule 11.3(a) of the Budapest Treaty. The applicant subsequently objected to the request, and a hearing in the matter was held in Canberra on 16 Feb. 1994. I issued a decision on 25 March 1994 [reported in (1994) AIPC 91-069] finding inter alia:

-the undertaking in respect of experimental use, and of not making the sample available to others, is in respect of actions anywhere in the world;

-the request is deficient in that the undertaking fails to identify the microorganism the subject of the undertaking, and the manner of referring to a petty patent, or relevant proceedings, is inadequate;

-the requestor's intended use of the sample falls within the meaning of experimental purposes; and

-there is no basis for me to conclude that the undertaking was not made in good faith.

Because the request was deficient, I refused to make the certification referred to in Rule 11.3(a) of the Budapest Treaty. However I stated inter alia that if the requestor filed a new undertaking consistent with my findings within 60 days of the date of that decision, I would reconsider the request in the context of that undertaking.

The requestor duly filed a new undertaking. The applicant requested to be further heard, with particular reference to whether the Commissioner should impose conditions. A hearing was held on 21 June 1994, in Canberra. As before, the applicant was represented by Mr. P Jones (patent attorney of Phillips Ormonde & Fitzpatrick, Melbourne); the requestor appeared by phone and was represented by Mr R Halliday (patent attorney of G.R. Cullen & Co., Brisbane) assisted by Dr. K Finney.

New York University has filed a request for review of my previous decision with the Administrative Appeals Tribunal. However, no application was made under S.41(2) of the Administrative Appeals Tribunal Act for a stay of that decision. There is therefore no reason why I should not hear and determine the present case - subject to my not reconsidering matters which were finally determined in that earlier decision. (See, for example, ex parte Mole Engineering, 147 CLR 340.)

Submissions

At the outset of the hearing, Mr Jones stated that, subject to the matters under appeal to the AAT, the applicant had no technical objections to the undertaking.

The issue of substance in the present hearing is the matter of whether the Commissioner should impose conditions in granting a certification. The submission of the applicant was that I should require a security for a breach of the undertaking, and argued for a security in the amount of US$17,400,000. They also suggested that, while in my earlier decision I did not find that the requestor was not acting in good faith, the level of proof was different when considering whether or not to require a security.

The requestor argued that:

-there was a problem with the wording of Reg. 3.25(2), and consequently there was no basis for requiring a security;

-a deposit of a micro-organism is a substitute for a written description. The instructions in a typical patent specification could be implemented by anyone upon reading them, with there being no security issues associated therewith. A deposited microorganism should be treated in much the same manner - and no security should be required; and

-the issue of good faith of the requestor had been conclusively dealt with in my earlier decision.

The requestor also indicated that they were not making any offer to provide any security.

It was common ground that the hybridoma was effectively a cell factory. That is, anyone having a sample of the deposit would be able to generate as many copies of the hybridoma as they required, and obtain the beneficial products produced by the hybridoma.

Alternative Proposal

At the hearing, I suggested to the parties that there may be an alternative solution to the present dispute. I suggested that since the requestor was seeking access to compare an antibody produced by them and that produced by the applicant's hybridoma, perhaps the parties could agree for the deposited hybridoma to be made available to an agreed third party who could conduct the tests.

Subsequently, the applicant advised:

"... Applicant would be very happy to release the hybridoma only to a mutually agreed upon independent expert who will agree not to release the hybridoma to any other person for any purpose and to destroy the hybridoma once the experiments requested by Nissin have been completed.

"We submit that if Nissin refuses to accept the Hearing Officer's proposal, this raises substantial questions as to Nissin's bona fides and is, thus, further justification for setting the very high security for damages we have sought."

The requestor advised:

"A letter dated December 15, 1994 from Nissin to the US Attorneys ... (detailed in my earlier decision), particularised the need for a sample of HB10725. The letter stated that a sample of the hybridoma was required for the purposes of conducting a precise comparison and obtaining reliable data on the difference between Nissin's monoclonal antibody and that produced by HB10725.

"The precision of any comparison and the reliability of the data obtained can only be ensured if the comparison is carried out by Nissin. Accordingly, the Hearing Officer's proposal is rejected."

Decision

The Request

In my earlier decision, I identified a number of deficiencies in the undertaking. The requestor has filed a new undertaking to address those deficiencies. The applicant raised no objection to the new undertaking (although, as indicated in their application for review to the Administrative Appeals Tribunal, did not necessarily agree that it met the requirements of the regulations). I am satisfied that it now meets the requirements of the regulations, and that (subject to a consideration of the imposition of conditions) I should comply with the request.

Basis for Imposing Conditions

Sub-regulation 3.25(2) provides:

"As soon as practicable after receiving a request, the Commissioner must decide whether to:

(a)comply with the request; or

(b)impose such conditions as are reasonable, including a condition that the person give security for damages for any breach of the undertaking referred to in paragraph (4) (c) given by:

(i)the person; or

(ii)another person who has been nominated as a skilled addressee; or

(c)refuse that request."

The requestor argued that there was a drafting anomaly with this provision. They noted that paragraph (b) does not provide for "complying with the request"; that the OR used combined the subparagraphs disjunctively; and consequently that I had to decide to do ONLY one of:

-    comply with the request,

-    impose conditions, or

-    refuse the request;

and if I were to impose conditions there were no apparent consequences from a failure to meet these conditions. They also noted corresponding regulation 19ZF(2) of the regulations under the 1952 Act, in which the imposition of conditions was explicitly associated with complying with the request.

Furthermore, the requestor observed that no other jurisdiction had an equivalent provision providing for the imposition of conditions when making the certification referred to in Rule 11.3(a) of the Budapest Treaty. They referred particularly to the European Patent Convention, and the US Patent Law. Following this, it was argued, no conditions should be imposed.

I do not accept these arguments. Firstly I note subsection 15AA(1) of the Acts Interpretation Act 1901, which provides:

"In the interpretation of a provision of an Act, a construction that would promote the purpose or object underlying the Act (whether that purpose or object is expressly stated in the Act or not) shall be preferred to a construction that would not promote that purpose or object."

In my view, the intention of subregulation (2)(b) is abundantly clear. The regulation is concerned with providing a mechanism to make samples of a deposited microorganism available. Part of that process is the making of an undertaking, as prescribed in subregulation 3.25(4)(c). The regulations also provide a mechanism for compensation in the event that the undertaking is not complied with (see regulations 3.26 to 3.28), and in 3.28(2)(d) makes explicit provision for an order in respect of any security given. In this context, it is manifestly clear that the purpose of subparagraph (b) is to provide (in appropriate circumstances) for a conditional granting of the certification sought.

The interpretation argued for by the requestor is reliant upon interpreting the OR as used in that subparagraph as disjunctive - that is, such that I can only decide to do one of the three things specified.

The Macquarie Dictionary defines the word OR as:

"conj. a particle used: 1. to connect words, phrases, or clauses representing alternatives;  to be or not to be. 2. to connect alternative terms: the Hawaiian or Sandwich islands ...."

I view the word OR as providing for alternatives, but the exclusivity of those alternatives is dependant upon the context of usage. Thus the example of the first dictionary definition is clearly exclusive, whereas the example of the second definition is clearly inclusive.

If subregulation 3.25(2) is interpreted with the OR being exclusive, there is the anomaly that there is no apparent purpose for subparagraph (b) - which is clearly inconsistent with the intention of the provision. On the other hand, there is no apparent reason why the OR ought not be interpreted inclusively - that is, such that a decision could be to do more than one of the three things specified. An inclusive interpretation provides for a conditional compliance with the request [paragraphs (a) and (b) together], which is consistent with the clear intention of the legislation. Further, I do not think that an inclusive interpretation is negated by the theoretical possibility of deciding to both comply, and refuse to comply, with the request [paras (a) and (c) together], as such a decision is clearly illogical - whereas conditional compliance is clearly a logical outcome.

Consequently, in a practical sense I consider sub-regulation (2) provides 3 clear options for a decision of the Commissioner - viz:

a.   to decide to comply with the request, with no fetters;

b.to decide to comply with the request subject to conditions - such as, for example, to require the payment of a security before issuing the certification; and

c.   to decide to refuse the request.

Secondly, on the matter of the lack of similar provisions in other jurisdictions, I consider the apparent fact that neither the EPC nor US law requires a security for a breach of the undertaking, to be totally irrelevant to my considerations. I am bound by the provisions of the Australian Patents Act. Regulation 3.25(2)(b) makes explicit provisions for the imposition of conditions. There is absolutely no basis for me to ignore this provision on the basis that other jurisdictions do not have a similar provision. Similarly, I cannot ignore these provisions on the basis that they are unique to inventions involving microorganisms, and there are no similar provisions for other types of inventions.

I am therefore of the view that when it is warranted, I can impose conditions, including a security for a breach of the undertaking, when granting the certification sought.

The Alternative Proposal

Regulation 3.25 includes a mechanism whereby the patentee can request that a sample of a deposited microorganism is only to be made to certain persons, before the date of grant, lapsing or refusal of the application - see subregulations 3.25(3) and (4)(d). The provision of this mechanism for release to be effected to a third party when a relevant request has been made by the applicant is not, in my view, restricted to those circumstances only. That is, I consider a request under 3.25(1) can be for release to a nominated skilled addressee irrespective of whether the applicant has made a request under 3.25(3).

The requestor has rejected my proposal for the sample to be released to an independent third party for testing, on the assertion that the precision and reliability of those tests can only be ensured if they conduct the comparison themselves. The requestor did not support this assertion with any significant technical reasons. I do not accept that it is not possible for an independent third party to carry out reliable comparative tests; biotechnology is a young but well-developed technology, and there must be a large number of enterprises around the world that would be capable of performing such tests. Consequently, I believe that release of the microorganism to an independent third party for the purpose of carrying out comparative tests is a reasonable condition to impose on the request.

Consequently, I will comply with the request under the following conditions:

1. the sample is to be released to an independent third party who is:

a.   a skilled addressee without an interest in the invention; and

b.nominated by the requestor,

with the applicant being entitled to be heard on whether or not the nominated person is a skilled addressee without an interest in the invention;

1. the third party must make the undertaking required by regulation 3.25(4)(c); and

1. the third party must undertake to destroy the hybridoma once the experiments requested by Nissin have been completed.

However, as the requestor has rejected my proposal for release to an independent third party, and the hearing proceeded on the basis of whether or not a security for a breach of the undertaking should be required, it is appropriate that I also consider the matter of requiring a security as a condition for complying with the request.

Relevant Precedent for Security

I am unaware of any precedent, either in Australia or in other jurisdictions, for imposing a security for a breach of undertaking as a condition for granting the certification referred to in rule 11 of the Budapest Treaty. However there is much precedent on the matter of security against an award of costs in court proceedings. I am of the view that this precedence is of some relevance.

For a security against costs, the main consideration for making an order is whether the plaintiff has assets in the jurisdiction, to which the defendant can have access if successful. The rationale for this is explained in, for example, C.A. Aeronave SPA v. Westland Charters Ltd. (1971) 3 All ER 532, where Denning M.R. said

"... if the defendant succeeds and gets an order for his costs, it is not right that he should have to go to a foreign country to enforce the order".

and I consider this principle to have equal applicability to a security for a breach of an undertaking.

I note that it is apparently common ground that the requestor is not resident in Australia, and has no significant assets in Australia. Indeed, at the hearing I asked the attorney for the requestor whether they had assets in Australia; he indicated that he was not sure, but thought there were not any.

A second consideration is that courts consider it generally inappropriate to investigate the merits of the substantive case when considering an application for security of costs in that case. See, for example, Porzelack KG v. Porzelack (U.K.) Ltd. (1987) FSR 353. In my view this principle is entirely appropriate to a security for a breach of the undertaking. I do not think it appropriate for the Commissioner to undertake an assessment of the likelihood of the requestor breaching the undertaking they have made as a precondition for requiring a security for a breach of the undertaking.

Thirdly, the quantum of security should neither be illusory nor oppressive. Furthermore, the courts do not set out to give a complete and certain indemnity.

Thus, based on the apparent fact that the requestor has no material assets in Australia, I consider it appropriate that I accede to the applicant's request that I should only grant the certification sought on the condition that the requestor provides a security for a breach of the undertaking.

Quantum of Security for Breach of Undertaking

I must now decide the quantum of the security that should reasonably be required. On this matter the submissions of the parties provide me with little assistance. The requestor argued that they should not be required to provide any security; they did not provide any submissions addressing the appropriate quantum of a security if I found that one should be required. On the other hand, the patent applicant merely provided an estimate of potential sales in the United States of America, reducing that to a present-day value of royalties over the life of the patent - and requested security for that amount.

Simpliciter, I could proceed on the basis that the applicant has indicated a potential loss of royalties of A$24 million (a figure uncontested by the requestor), and set the security at this figure - viz A$24 million. However I consider it appropriate to go beyond such a simpliciter consideration, and consider the merits in greater detail.

To determine the basis for setting the quantum of the security, it is relevant to consider the remedies available in the event of a breach of the undertaking. These are specified in regulation 3.28:

(1)In proceedings referred to in subregulation 3.26 (1) ("breach of undertakings given in respect of micro-organisms"), the court may:

(a)  make an order for inspection; and

(b)impose terms and give directions with respect to the inspection.

(2)In proceedings referred to in subregulation 3.26(1), the court may grant such relief as it thinks fit, including:

(a)an injunction on such terms as it thinks fit; or

(b)an order for damages; or

(c)an order for an account of profits; or

(d)an order with respect to any security given under paragraph 3.25(2)(b) ("request for Commissioner's certificate authorising release of sample of a micro-organism"); or

(e)an order on such terms as it thinks fit to deliver to such person as it thinks fit the micro-organism or any substance or thing derived directly or indirectly from that micro-organism as a result of the breach of the undertaking, including:

(i)any products made by using that micro-organism; and

(ii)any other micro-organisms derived from that micro-organism; and

(iii)any products made by using those other micro-organisms.

It seems to me that subparagraph (2)(d), relating to an order in respect of any security, is provided in the context of orders for damages (para. b), an account of profits (para. c), and delivering up (para. e). That is, the quantum of security is to be determined in the context of a possible award of damages, or account of profits, in the event of a breach of the undertaking.

I note that the scope of the provisions for a breach of the undertaking are broader than those for infringement of a patent. In particular, there will be circumstances involving a breach of an undertaking that do not result in infringement of a patent (and therefore not actionable as an infringement.) For example, where the invention relates to a product produced by a microorganism, a use of that microorganism to produce a different product may not be an infringement. Similarly, an abuse in another country of an undertaking made in Australia would not result in an infringement of any Australian patents.

It therefore seems to me that the appropriate basis for assessing the quantum of security is to make a reasonable assessment of the damages that are likely to be incurred if the undertaking is abused, and to assess the security as a portion of that sum.

[It is appropriate to note here that there are some important differences between a security against costs and the security for a breach of an undertaking. These are:

1. the time for which a security against costs is required is relatively short - viz. until the conclusion of the proceedings, which one would normally expect to be no more than one or two years. In the case of a certification, the undertaking applies until such time as the application lapses or patent ceases. In the present case, assuming the patent lasts its full 16 years, any security would potentially be required to be held until the year 2007 - that is, the requestor would be required to commit funds for a period of some 13 years.

1. the quantum of security for costs would normally be constrained by the schedule against which costs are taxed, and would therefore be determinable (at least to a reasonable approximation) at an early stage in the proceedings.

There is no equivalent basis for assessing the quantum for a security for a breach of the undertaking. This renders the assessment of the quantum of security more difficult.

1. a security for costs is explicitly concerned with ensuring that there is appropriate compensation available in Australia for the cost of court actions in Australia. In the case of the release of a sample of a microorganism, I previously found that the undertaking refers to actions anywhere in the world. In the present case, it is quite likely that the greatest commercial damage caused by a breach of an undertaking will occur outside of Australia (in larger economies).]

The applicant has requested that I require a security in the sum of US$17,400,000 (approximately A$24 million). This figure is derived as follows:

-Predicted annual sales in the USA: US$100M per annum

-Total sales over last 10 years of the patent's life = US$1 billion

-Equivalent lump sum value at present date = US$347M

-Royalty that would be paid to the applicant, at 5% royalty rate, US$17.4.

These figures were not contested by the requestor.

I note that these figures are based solely on sales in the USA. The reason for this, based on the comments of the attorney, is apparently associated with certain features of US patent law. Unlike most other countries, US patent applications are not published until the patent is granted; in the present case grant may not occur for some time, because the authorities will require to be satisfied that the invention works (implicitly, they may have to gain FDA approval). Thus if in the meantime the hybridoma is made available to third parties, those parties may attempt to exploit it in the USA before the patent is granted, and there could be no action for infringement (nor to obtain an injunction). However, I am somewhat sceptical of this argument. If the applicant cannot get a US patent until they obtain FDA approval for the product, I fail to see how a third party could exploit the invention in the USA - presumably they also would need FDA approval before they could sell the product. I therefore have some doubts about the expressed basis of concern of the patent applicant.

I also note that if the security for a breach of undertaking is based on possible sales/profits/royalties over the residual life of the patent, any figure derived must necessarily be speculative. Indeed, any assessment by a patent applicant of future income is potentially optimistic. The earning capacity may also be conditional - in the present case it is apparent that future earnings are largely dependant upon the applicant obtaining FDA approval in the USA - the probability of which I have no basis to assess. Additionally, some damages that accrue from an abuse of the undertaking might be addressed through actions for infringement - and for such damages there is arguably less basis for requiring a security.

Thirdly, I am not at all convinced that an estimate of potential royalties can be converted directly into a measure of damages that might be awarded if the undertaking is abused. It would be relevant if, and I would suggest only if, the abuse of the undertaking were to completely destroy the market so that no sales of the product were possible by the patent applicant or its agents during the term of the patent. But I consider such a situation would be highly exceptional, and in the present case I am unaware of any circumstances where an abuse of the undertaking could reasonably be said to completely destroy the whole market for the applicant for the term of the patent.

For these reasons, I consider the figure suggested by the applicant is unjustifiably high. On the other hand, the requestor did not seek to challenge the applicant's assessment of potential damages.

Thus, while the patent applicant has estimated total royalties at A$24 million, and requested a security of that amount, I consider the likely damages from an abuse of the undertaking will only be a portion of the amount requested. Thus, and in the absence of any submissions on what portion of the estimated royalties would constitute a reasonable security, I set the security at 25% of the estimated royalties - that is, A$6 million. Consequently, I consider that as a condition for complying with the request, the requestor must give a security to the value of A$6 million.

provision of the security

Any security must be held until such time as the patent lapses or expires; it is necessary to guarantee that the security is available for that period of time. I also consider that, absent an agreement between the parties, the security should be held within Australian jurisdiction.

I therefore require any such security to be either:

a.in a form, and held in a manner, agreed to as between the parties; or

b.filed with the Commissioner of Patents, and in a form agreed to by the Commissioner.

If Nissin elects to use the second option, they will need to contact the Commissioner to determine relevant details.

I also consider that if Nissin are going to provide a security, it should be provided within a reasonable time from the date of the decision. It would be inappropriate, in my view, for the requestor to take no action for (say) 10 years, and then provide the security relying on this decision to obtain access - as the considerations relevant to a decision under regulation 3.25 may well have changed over that time. As a result, (and subject to any appeal against this decision) I require any security to be provided within 6 months of the date of this decision.

Review of the Quantum of Security

The damages that may arise from a breach of the undertaking are likely to change over the life of the patent. For example, if FDA approval is refused, the potential commercial worth associated with the hybridoma may drop dramatically - in which case requiring the requestor to maintain a security far in excess of what could be justified if access was sought at that later date would clearly be inequitable. Hence if during the life of the patent, events occur which result in the commercial value attached to the hybridoma being significantly reduced, I would consider it appropriate for Nissin to request the Commissioner review the quantum of the security required to be maintained

Costs

The parties indicated that costs in the present hearing should follow the event. I agree, and award costs against Nissin Molecular Biology Institute, Inc.

Conclusion

I have found that I will comply with the request for a certification of the Commissioner for the release of a microorganism, under one or other of the following two sets of conditions.

1. The release is to be effected to an independent third party on the following conditions:

a.the sample is to be released to an independent third party who is:

i.a skilled addressee without an interest in the invention; and

ii.nominated by the requestor,

with the applicant being entitled to be heard on whether or not the nominated person is a skilled addressee without an interest in the invention;

b.the third party must make the undertaking required by regulation 3.25(4)(c); and

c.the third party must undertake to destroy the hybridoma once the experiments requested by Nissin have been completed.

OR

1. The requestor provides a security for a breach of the undertaking referred to in regulation 3.25(4)(c), to the value of A$6 million. That security is required to be:

a.in a form, and held in a manner, agreed to as between the parties; or

b.filed with the Commissioner of Patents, and in a form agreed to by the Commissioner.

Subject to any appeal, any such security is to be provided within 6 months of the date of this decision.

My earlier decision is the subject of review by the Administrative Appeals Tribunal, but no application has been made under s.41(2) of the Administrative Appeals Tribunal Act for a stay of that decision. There is also the possibility that this decision will be appealed, and I note that once I have issued the certification I doubt that the appeal process can prevent a foreign person who has received the certification, from using it to obtain a sample of the microorganism from a foreign International Depositary Institution. The proceedings before the Administrative Appeals Tribunal regarding my earlier decision have been adjourned until 15 September 1994. If the requestor complies with either of above sets of conditions I will make the requested certification, but not before 16 September 1994.

If the requestor provides a security, they will be at liberty to apply to the Commissioner for a review of the quantum of that security if events occur which result in the commercial value attached to the hybridoma being significantly reduced.

D. HERALD
Deputy Commissioner of Patents

Patent attorneys for the requestor  :  G.R. Cullen & Co., Brisbane

Patent attorneys for the applicant  :  Phillips Ormonde & Fitzpatrick, Melbourne