Sandoz Pty Ltd v H. Lundbeck A/S

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FEDERAL COURT OF AUSTRALIA

Sandoz Pty Ltd v H. Lundbeck A/S [2020] FCAFC 133

Appeal from:

H. Lundbeck A/S v Sandoz Pty Ltd [2018] FCA 1797

H Lundbeck A/S v Sandoz Pty Ltd (No 2) [2019] FCA 46

File numbers: NSD 22 of 2019
NSD 23 of 2019
Judges: NICHOLAS, YATES AND BEACH JJ
Date of judgment: 4 August 2020
Catchwords:

CONTRACTS – proper construction of settlement agreement compromising patent proceedings – effect of clause granting appellant licence to exploit patent prior to its expiry – where clause specified possible commencement dates but no end date – whether licence continued to apply in relation to acts occurring after expiry of term of the patent and before the term was subsequently extended – consideration of surrounding circumstances known to the three parties to settlement agreement and commercial purpose or objects of transaction – whether on appellant’s construction the settlement agreement produced a commercially nonsensical result – whether settlement agreement provided appellant with a defence to infringement proceeding

PATENTS – s 223(10) of the Act – whether patent the term of which was extended after having previously expired was a patent which had “ceased” and was later “restored” within the meaning of s 223(10)(b) of the Act – whether s 223(10)(b) of the Act provided appellant with a defence to infringement proceedings

PATENTS – s 79 of the Patents Act 1990 (Cth) (“the Act”) – whether exclusive licensee may commence proceeding for patent infringement for acts done during period between date of expiry of patent and date on which term of patent is subsequently extended

PATENTS – whether deed of agreement appointing subsidiary exclusive licensee of patent was varied by settlement agreement authorising appellant to exploit invention – whether settlement agreement deprived subsidiary of its status under deed of agreement as exclusive licensee

PATENTS – s 79 of the Act – date on which patentee’s cause of action arises where patentee’s right to commence proceeding depends on operation of s 79 of the Act – whether s 51A(1) of Federal Court of Australia Act 1976 (Cth) authorised award of pre-judgment interest in respect of damages suffered by patentee prior to the extension of term of patent

Legislation:

Federal Court of Australia Act 1976 (Cth) s 51A

Patents Act 1990 (Cth) ss 13, 57, 70-79A, 120, 143, 223

Patents Regulations 1991 (Cth) reg 22.21

Cases cited:

Aberdeen City Council v Steward Milne Group [2011] UKSC 56

Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570

Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27

Alphapharm Pty Ltd v H Lundbeck A/S (2006) 69 IPR 629

Alphapharm Pty Ltdv H Lundbeck A/S (2008) 76 IPR 618

Alphapharm Pty Ltd v H Lundbeck A/S & Anor [2009] HCATrans 324

Alphapharm Pty Ltd v H Lundbeck A/S (2011) 92 IPR 628

Alphapharm Pty Ltd v H Lundbeck A/S (2014) 109 IPR 323

Alphapharm Pty Ltd v H Lundbeck A/S (2014) 110 IPR 59

Alphapharm Pty Ltd v…

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Details
Case
[2020] FCAFC 133
Decision Date

CaseChat Overview and Summary

Sandoz Pty Ltd (Sandoz) appealed against a decision of the primary judge who found that Sandoz did not have a licence to exploit the patent owned by H. Lundbeck A/S (Lundbeck). The dispute arose out of a settlement agreement between Sandoz and Lundbeck that compromised patent proceedings between Lundbeck and other parties. The court was required to decide whether the settlement agreement granted Sandoz a licence to exploit the patent prior to its expiry and whether this licence continued to apply after the patent expired but before the term was extended. The court also had to determine if the settlement agreement provided Sandoz with a defence to infringement proceedings. Furthermore, the court had to consider if the patent, which was extended after having previously expired, qualified as a patent that had "ceased" and was later "restored" within the meaning of the Act. Finally, the court had to examine if the settlement agreement varied the deed of agreement appointing the subsidiary exclusive licensee of the patent.

The court found that the settlement agreement did grant Sandoz a licence to exploit the patent prior to its expiry, and this licence continued to apply in relation to acts occurring after the patent expired but before the term was extended. The court rejected the notion that the settlement agreement produced a commercially nonsensical result and held that it provided Sandoz with a defence to infringement proceedings. The court also found that the patent did qualify as a patent that had "ceased" and was later "restored" within the meaning of the Act, and thus s 223(10)(b) of the Act provided Sandoz with a defence to infringement proceedings. Finally, the court held that the settlement agreement did not deprive the subsidiary of its status under the deed of agreement as the exclusive licensee.

The appeal was allowed, the cross-appeal was dismissed, and the orders made by the primary judge were set aside. The question of what costs orders should be made in the proceeding was to be determined on the papers following receipt of written submissions filed in accordance with orders made in NSD 22 of 2019.

Orders

Orders of the court

1. The appeal be allowed.

2. The cross-appeal be dismissed.

3. Declaration 1 and order 4 made by the primary judge on 19 February 2019 be set aside and in lieu thereof order that the Originating Application be dismissed.

4. The question of what costs orders should be made in the proceeding in lieu of that made by the primary judge and in the appeal be determined on the papers following receipt of written submissions filed in accordance with orders made in NSD 22 of 2019.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

For the reasons that follow we have concluded that the appeals should be allowed and the orders made by the primary judge awarding the respondents’ declaratory and pecuniary relief should be set aside. Lundbeck’s cross-appeal should also be dismissed. FACTUAL BACKGROUND The relevant patent application was filed on 13 June 1989 which is the date of the Patent. The Patent was for a term of 20 years expiring on 13 June 2009 unless the term was extended by the Commissioner of Patents in accordance with the provisions of Ch 6, Pt 3 (ss 70-79A) of the Patents Act 1990 (Cth) (“the Act”). As will be explained, Lundbeck made two applications for an extension of the term of the Patent. The first such application was made on 22 December 2003 based on the registration of escitalopram oxalate on the Australian Register of Therapeutic Goods (“ARTG”) on 16 September 2003. This registration was referred to in the primary judge’s reasons and the parties’ submissions as the Lexapro registration. Escitalopram is the S-enantiomer of the racemate, citalopram. Citalopram was registered on the ARTG on 9 December 1997. The primary judge’s reasons and the parties’ submission referred to this as the Cipramil registration. On 27 April 2004, the term of the Patent was extended by the Commissioner to 13 June 2014 based on the Lexapro registration. However, on 19 May 2006 Dr Barker, a Delegate of the Commissioner, directed that the date of the extension of term be amended to 9 December 2012 based on the Cipramil registration. Dr Barker decided that the Register of Patents (“the Register”) should be amended “to insert the correct extension of the term of the patent”: Alphapharm Pty Ltd v H Lundbeck A/S (2006) 69 IPR 629 at [35]. Various generic suppliers brought proceedings in relation to the Patent. In particular, Alphapharm Pty Ltd (“Alphapharm”) and Arrow Pharmaceuticals Pty Ltd (“Arrow”) each brought a proceeding seeking orders for revocation of claims 1-6 and rectification of the Register by removing the extension of term and recording that the Patent would expire on 13 June 2009 or, alternatively, 9 December 2012. On 13 April 2006, Sandoz also brought a claim for orders for revocation of claims 1-6 of the Patent and rectification of the Register by removing the extension of term. However, this proceeding was settled in late February 2007 pursuant to the settlement agreement which we discuss below. The proceedings between Lundbeck, Alphapharm and Arrow were heard by Lindgren J. On 24 April 2008 his Honour held that the extension of term to 13 June 2014 was invalid because the relevant date under s 71(2) of the Act was the date of the Cipramil registration and not the Lexapro registration: Alphapharm Pty Ltdv H Lundbeck A/S (2008) 76 IPR 618. On 19 June 2008, his Honour ordered that the Register of Patents should be rectified by removing reference to the extension of term. His Honour stayed this order pending determination of an appeal by Lundbeck.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Looking at the dates referred to in cl 3(1), it is clear that subpara (a) refers to the date upon which the Patent would expire in the event that the 20 year term was not extended, subpara (b) refers to the date on which the Patent would expire in the event that the term was extended based on the Cipramil registration, and subpara (c) refers to the date on which the Patent would expire if the term was extended based on the Lexapro registration. Subpara (d) reflects the further possibility that the Patent might expire on some other date. The Primary Judge’s Decision Before the primary judge Sandoz’s primary submission was that cl 3(1) of the settlement agreement was to be interpreted as meaning, in effect, that the licence conferred on Sandoz would commence to run from a date determined by reference to whichever of the expiry dates referred to in cl 3(1) was determined, in the proceeding between Alphapharm and Lundbeck, or any appeal, to be the date on which the Patent would expire. That construction of cl 3(1) was rejected by the primary judge and it is no longer relied upon by Sandoz. Sandoz’s alternative construction, which the primary judge also rejected, was that cl 3(1) should be interpreted to mean that if the Patent reached the end of its term (as it did on 13 June 2009) then it expired on that date, and thus the licence under cl 3(1) commenced to run some two weeks prior to such expiry and continued to operate indefinitely from that date forward. In its appeal, Sandoz contends that the primary judge erred in rejecting that construction of cl 3(1). Lundbeck’s submission at trial was that cl 3(1) should be interpreted as referring to the date on which the term of the Patent, as extended, expired. Accordingly, Lundbeck submitted to the primary judge that cl 3(1) should not be read as applying to the expiry of the Patent on 13 June 2009 if the term of the Patent was extended by order made either before or after that date. On Lundbeck’s construction, the licence under cl 3(1) was not triggered until 26 November 2012, ie. some two weeks prior to the term of the Patent ending on 9 December 2012. The primary judge rejected Lundbeck’s construction. Her Honour observed that the expiration of the Patent was a necessary pre-condition to the operation of s 79 of the Act upon which Lundbeck relied to bring its proceeding, and that although the grant of the extension on 25 June 2014 extended the term of the Patent until 9 December 2012, s 79 did not deem the Patent not to have expired on 13 June 2009. Her Honour held that the only effect of the grant of the extension of term on 25 June 2014 was that s 79 was engaged to permit infringement proceedings to be commenced in respect of acts occurring between the date of expiry and the grant of the extension. In rejecting Lundbeck’s construction, her Honour also noted that while nothing in cl 3(1) or any other provision of the settlement agreement excluded the possibility that Lundbeck might make another application to the Patents Office for an extension of the term, she did not consider that this possibility should drive the construction of cl 3(1) because “[t]he clause is to be construed by reference to what it says, in context, and not by reference to what it does not say”.

Ratio Decidendi

Legal Principle Established

The second email relied upon by Lundbeck is written after the settlement agreement was entered into and is therefore admissible on the question of construction only in so far as it provides evidence of the surrounding circumstances known to both parties at the time the agreement was entered into: Centennial Coal Company Ltd v Xstrata Coal Pty Ltd (2009) NSWLR 129 at [48]. The email shows, as is common ground in any event, that at the date the settlement agreement was entered into the expiry date of the Patent was in dispute and the commencement date of the licence was therefore uncertain. Like the first email, it also indicates that it was the common intention of Sandoz and Lundbeck that Sandoz receive the benefit of a 14 day early entry licence from Lundbeck. However, it also has nothing to say as to what would happen in the event the Patent expired before any extension of term was granted or whether the parties contemplated that Sandoz might in those circumstances be required to withdraw its products from the market. Consideration It is convenient to begin with a consideration of the primary judge’s construction of cl 3. The primary judge’s construction of cl 3 distinguishes between the Patent prior to expiration and the Patent after expiration. According to her Honour’s construction, the licence conferred on Sandoz applies only to the Patent in the former sense, that is to say, before expiration of its term. Her Honour reasoned that, since it was not necessary for Sandoz to have a licence after the Patent had expired, it could be inferred that both parties intended that the licence under cl 3(1) would operate for a period of no more than two weeks. On the basis of this construction her Honour concluded that Sandoz enjoyed the benefit of a two week licence under cl 3(1) that ended when the Patent expired on 13 June 2009. We do not think it is open to construe the word “Patent” as applying only to the Patent before expiration. The Patent that was the subject of the extension of term granted on 25 June 2014 was the same Patent that expired on 13 June 2009. Sandoz either had a licence under the Patent or it did not. If it did have such a licence in the weeks leading up to the expiry of the Patent on 13 June 2009, then we do not see any basis for concluding that the licence would not provide Sandoz with a defence to a claim for infringement of the Patent founded on s 79 of the Act. The construction favoured by the primary judge could be justified, according to her Honour’s reasoning, on the basis that it was the manifest intention of the parties that Sandoz would obtain a licence to enter the market two weeks prior to the expiration of the Patent. A necessary corollary of her Honour’s reasoning was that it was also the manifest intention of the parties that Sandoz would not enjoy the benefit of any licence after expiry of the Patent and during any extension of its term. The difficulty with this reasoning, in our view, is that it is based on an assumption that the parties intended that Sandoz would be entitled to enter the market prior to expiry of the Patent in accordance with cl 3(1) but may at some later point in time be required to withdraw from that market on account of Lundbeck having obtained an extension of the term of the Patent (perhaps years) after the Patent had expired.