Biosimilars Deals 2021

Secretary, Department of Health v Medtronic Australasia Pty Ltd [2024] FCA 1096

Background

On 19 September 2024, the Federal Court of Australia delivered judgment ordering Medtronic Australasia Pty Ltd (Medtronic) to pay $22 million in penalties following proceedings bought by the Department of Health in August 2021.

Key Issues

ARTG Listing and Contravening Supply of Goods

The Therapeutic Goods Act 1989 (Cth) (the Act) requires (bar some limited exemptions, approvals and authorities) that:

• companies register therapeutic goods and medical devices on the Australian Register of Therapeutic Goods (ARTG) in order to lawfully supply those goods and devices in Australia; and
• those approved goods and devices then be supplied in accordance with their ARTG registration.

Between 1 September 2015 and 31 January 2020 (the Relevant Period), Medtronic supplied over 16,000 units of the INFUSE® Bone Graft Kits (the Kit).  Medtronic had an ARTG registration for a composite product comprising two separately packaged parts: a metallic spinal fusion cage (the Cage) and the Kit.  Medtronic began supplying the Kit without the Cage, contravening the ARTG registration requirements.  Notably, there was significant clinical demand for the Kit by itself, but not for the Kit and the Cage together.  The Kit alone was never entered on the ARTG as a separate approved product.

Joint Statement of Agreed Facts and Admissions

The parties filed a Joint Statement of Agreed Facts and Admissions.  Medtronic admitted to the supply of 16,267 units of the Kit to 109 hospitals during the Relevant Period, and that each instance of supply of the Kit was a contravention of s 19D(1) of the Act.

Although the parties had initially advanced different views as to whether the Kit was a “medical device” or “therapeutic good” within the meaning of the Act, they ultimately agreed, for the purpose of these proceedings, that the Kit was a “therapeutic good” so that the Court could resolve the matter on an agreed basis.  Classification of the Kit as a “therapeutic good” enabled the Court to be satisfied of the specific section of the Act which Medtronic had contravened and to then impose a civil penalty.

Medtronic admitted to being aware as early as 2009 of concerns that the Kit and Cage were not being supplied together as required by the ARTG entry, and that the implementation of a Standard Operating Procedure to address this issue was not effectively followed.  Medtronic further acknowledged withdrawing the accompanying Cage from the Australian market in 2018 without properly considering or giving attention to the regulatory implications for the Kit.

Outcome

The Court accepted the jointly proposed penalty of $22 million, having considered the need for general deterrence, the harm done to the regulatory system, Medtronic’s cooperation and remedial actions, and the lack of evidence of specific harm caused by the contraventions.  This marks the largest penalty ever imposed for breaching the Act.  In addition to the $22 million penalty, Medtronic agreed to pay $1 million towards the Department of Health’s legal costs.

About Pearce IP

Pearce IP is a boutique firm offering intellectual property specialist lawyers, patent attorneys and trade mark attorneys to the life sciences industries (in particular, pharmaceutical, biopharmaceutical, biotech, ag-tech and food tech).  Pearce IP is the 2021 ‘Intellectual Property Team of the Year’ (Lawyers Weekly Australian Law Awards) and was shortlisted for the same award in 2022.  Pearce IP is ranked in IAM Patent 1000 and Managing IP (MIP) IP Stars, in Australasian Lawyer 5 Star Awards as a ‘5 Star’ firm, and the Legal 500 APAC Guide for Intellectual Property.

Our leaders have been recognised in virtually every notable IP listing for their legal, patent and trade mark excellence including: IAM Patent 1000, IAM Strategy 300, MIP IP Stars, Doyles Guide, WIPR Leaders, 5 Star IP Lawyers, Best Lawyers, and Australasian Lawyer 5 Star Awards, and have been honoured with many awards including Australian Law Awards – IP Partner of the Year, Women in Law Awards – Partner of the Year, Women in Business Law Awards - Patent Lawyer of the Year (Asia Pacific), Most Influential Lawyers (Changemaker), among other awards.

Novartis AG v Pharmacor Pty Limited (No 3) [2024] FCA 1307

Background

On 13 November 2024, Justice Yates of the Federal Court of Australia delivered his decision in the dispute between Novartis AG and Novartis Pharmaceuticals Australia Pty Limited (together, Novartis) and Pharmacor Pty Limited (Pharmacor) regarding patent AU2003206738 entitled “Pharmaceutical compositions comprising valsartan and NEP inhibitors” (the Patent).

Claim 1 of the Patent claims a pharmaceutical composition comprising:

(i) valsartan (an angiotensin receptor blocker) or a pharmaceutically acceptable salt of valsartan; and

(ii) the neutral endopeptidase (NEP) inhibitor, sacubitril or sacubitrilat, or a pharmaceutically acceptable salt of either of these NEP inhibitors (Sacubitril is an ethyl ester and a prodrug of sacubitrilat), together with a pharmaceutically acceptable carrier.

The aim of the claimed invention was to provide a pharmaceutical combination/composition for the treatment or prevention of hypertension, heart failure, and myocardial infarction.

Novartis alleged that Pharmacor threatened to infringe claim 1 of the Patent based on its intended supply in Australia of Valtresto, for which Pharmacor had six registrations on the Australian Register of Therapeutic Goods (ARTG) commencing in April 2023.  Pharmacor denied infringement and cross-claimed alleging that the Patent was invalid on the grounds of obviousness, fair basis and lack of best method (applying the statutory tests applicable under the pre-Raising the Bar version of the Patents Act 1990 (Cth) (the Patents Act); and in any event that the Patent, which was in its extended term, had been wrongly granted a patent term extension (PTE).

Justice Yates ruled in Pharmacor’s favour, holding that Novartis had not established that Pharmacor threatened to infringe claim 1 of the Patent, and that the term of the Patent had been wrongly extended. The term of the Patent had therefore ended on 16 January 2023, three months before Pharmacor’s April 2023 ARTG registrations for Valtresto.

Given his Honour’s findings on infringement and the PTE, Justice Yates did not need to determine the invalidity cross-claim.  However, his Honour went on to consider the invalidity cross-claim, finding that Pharmacor had not established that claim 1 was invalid for lack of inventive step and that the grounds of fair basis and lack of best method had fallen away because of his Honour’s decision on the construction of claim 1.

Justice Yates’ decision is highly relevant for many reasons.  In particular, his Honour’s decision:

1. illustrates the central importance of claim construction, with the construction of claim 1 ultimately determining the issues of infringement, the validity of the PTE, whether claim 1 was fairly based on the Patent’s specification and whether the Patent disclosed the best method;

2. provides invaluable guidance on the questions of “ascertainment” and “relevance” in the context of the pre-Raising the Bar version of the section 7(3) test for obviousness, as to whether the person skilled in the art could be reasonably expected to have ascertained, understood and regarded as relevant prior art information; and

3. highlights the many pitfalls and difficulties which face a litigant seeking to revoke a patent for obviousness.  His Honour cautioned against the pervasive use of the reformulated “Cripps question” in the framing of litigants’ obviousness evidence, emphasising that ultimately the statutory test set out in section 7(2) of the Patents Act posed a more fundamental question: that is, is the invention, as claimed, obvious?  His Honour also emphasised that “hindsight is insidious”, noting:

(a) the influence that the sequence of hypothetical tasks given to a key Pharmacor expert had on the decisions and choices he made in addressing these hypothetical tasks in his evidence; and

(b) his Honour’s concern about the utility of asking an expert to address a task that seeks the “solution” to a “problem” when the “solution” to the “problem” must already have been known to the expert.

Australian patent practitioners will also be interested to learn that all the experts were provided with standard instructions in relation to the giving of evidence on the question of inventive step.  On 8 June 2023, the Federal Court of Australia IP Practice Area User Group had presented a draft of these instructions for discussion at a meeting with Judges in the Court’s Intellectual Property NPA Patents and associated Statutes sub-area.  Justice Yates considered it appropriate that those instructions be used for the assistance of the experts in this case.  The instructions are reproduced in the Schedule to his Honour’s judgment.

Key Issues

Construction

The only issue on construction was whether integers (i) and (ii) of the pharmaceutical composition were satisfied by a complex containing anionic valsartan, anionic sacubitril and pharmaceutically acceptable cations (such as sodium cations).

Novartis argued that claim 1 was directed to any pharmaceutical composition including a carrier that delivers valsartan and sacubitril/at as the relevant active agents or ingredients.  In particular, Novartis argued that:

• there was no limitation in claim 1 that excluded a pharmaceutical composition in which there are non-covalent bonds between the valsartan and sacubitril; and
• claim 1 did not require that integers (i) and (ii) be discrete physical substances, each with a unique set of physicochemical properties.

Justice Yates rejected Novartis’ arguments stating that claim 1 was a product claim, claiming a pharmaceutical composition defined by identified components, having their identified pharmacological activities, in the state in which those components exist in the composition itself.  The identified active pharmaceutical ingredients were:

(valsartan or a pharmaceutically acceptable salt of valsartan) + ([sacubitril or a pharmaceutically acceptable salt of sacubitril] or [sacubitrilat or a pharmaceutically acceptable salt of sacubitrilat]).

The invention of claim 1 was not defined in terms that implied that integers (i) and (ii) were combined to produce a new chemical entity, being a unique, single entity with its own properties.   Justice Yates considered that his construction of claim 1 was also supported by the specification which made clear that a “therapeutically effective amount” of “each” component of the combination may be administered “simultaneously or sequentially and in any order”.  Justice Yates concluded by stating at [223] that:

To construe claim 1 as I have is not to “exclude” a complex.  It is simply to recognise that, by claiming the pharmaceutical composition in the way it has, Novartis has claimed a composition in which the component of integer (i) and the component of integer (ii) are each present as separate components.  One cannot “exclude” that which has not been claimed.

Infringement

Pharmacor’s Valtresto was a film-coated tablet incorporating an amorphous complex (SVT1), and excipients, in which valsartan anions, sacubitril anions, and sodium cations were present in a 1:1:3 ratio.  Critically, SVT1 was a single chemical entity consisting of sacubitril, valsartan and sodium associated by non-covalent bonds, that is, a complex, not two active ingredients that were separate salts of sacubitril and valsartan.  On this basis, Justice Yates held that Valtresto did not infringe claim 1 of the Patent.

Justice Yates considered that it was not to the point that Valtresto comprised an amorphous complex which formed due to the unique properties of the sodium salt of sacubitril and the sodium salt of valsartan when in combination.  This argument conflated the preparation of STV1 and the state of STV1 in Valtresto as a finished product.  It was also irrelevant that, upon administration, Valtresto disintegrated and SVT1 dissociated.

PTE

Pharmacor challenged the validity of the extension of term on the following alternate bases:

1. If claim 1 encompassed a combination (not a complex), then the requirement in section 70(3)(a) of the Patents Act (for goods containing or consisting of the claimed combination to be included on the ARTG) was not satisfied; or

2. If claim 1 did encompass a complex, then the requirement in section 70(2)(a) of the Patents Act was not satisfied on the basis that the complex was not also in substance disclosed in the complete specification of the Patent.

Given his Honour’s finding that claim 1 did not encompass a complex, Justice Yates only needed to consider the first basis, that is whether the section 70(3)(a) requirement had been satisfied.  Relevantly, Justice Yates found that Novartis’ Entresto, being the ARTG-registered product upon which Novartis’ PTE had been based, was a film-coated tablet that contained an active ingredient which was a salt complex of: (i) the anionic forms of sacubitril and valsartan, sodium cations, and water molecules in the ratio of 1:1:3:2.5 (TSVH), and (ii) excipients.  TSVH was a single salt with a unique set of physicochemical properties.  So, it followed that Entresto did not contain or consist of the claimed combination, being (a) valsartan or a pharmaceutically acceptable salt thereof; (b) sacubitril or a pharmaceutically acceptable salt thereof; and (c) a pharmaceutically acceptable carrier.

Accordingly, Justice Yates held that the PTE had been wrongly granted, and as a result, the Patent had expired in January 2023.

Obviousness

Pharmacor’s challenge to the invention claimed in claim 1 on the ground of obviousness relied on the common general knowledge (CGK) and prior art information, known as the Ksander paper and the Ksander patent (the Ksander documents).  To be able to rely on the Ksander documents, Pharmacor had to satisfy the test in section 7(3) of the Patents Act (in the form that it existed prior to the Raising the Bar amendments), that is, that the person skilled in the art could be reasonably expected to have ascertained, understood and regarded as relevant the prior art information in the Ksander documents.

In determining that the requirements of section 7(3) had been satisfied and rejecting all of Novartis’ arguments to the contrary, Justice Yates provided the following guidance to patent litigants on the section 7(3) test:

1. Ascertainment:

(a) Evidence of a hypothetical search is admissible, but not always necessary, to seek to prove ascertainment.  For example, the prior art information may have been published in a well-known journal that would have been consulted by the person skilled in the art, providing a sufficient basis to establish the reasonable expectation that the person skilled in the art would have ascertained the prior information.

(b) If evidence of a hypothetical search is relied on, it does not matter that the person skilled in the art could, would, or might have, conducted other searches in addition to the search that ascertained the prior art information in question, or found other prior art information.

(c) It was also not necessary for evidence to be adduced that the person skilled in the art would prefer, prioritise, or select the ascertained information over other information which the person could be reasonably expected to have discovered or found.

2. Relevance:

(a) Relevance is judged by reference to the subject matter of the claimed invention.

(b) The subject matter of the invention as claimed in the Patent was a composition that contained an identified angiotensin receptor blocker and identified NEP inhibitors.  This composition was said to address the need for an efficacious combination therapy for the treatment of hypertension, the treatment or prevention of heart failure, and the treatment and prevention of myocardial infarction and its sequelae.

Justice Yates then turned to answer the ultimate question of whether the claim 1 invention was obvious in light of the CGK considered together with the Ksander documents.  As already mentioned, Justice Yates found that the claim 1 invention was not obvious in light of the CGK considered together with the Ksander documents.

Justice Yates noted that Pharmacor had argued its obviousness case using the reformulated “Cripps question”:

Would the notional research group seeking to [come] up with a pharmacotherapy to treat each of HTN and HF, in all the circumstances (which include the CGK and the s 7(3) prior art), have been directly led as a matter of course to try the claimed invention in the expectation that it might well produce a useful or better alternative to other pharmacotherapies?

Justice Yates cautioned against “ … proceeding to answer the statutory question through the instrumentality of the reformulated “Cripps question” lest important considerations involved in answering the statutory question are masked”.  Justice Yates emphasised that sight should not be lost of the fact that the test under section 7(2) of the Patents Act posed a more fundamental question: that is, is the invention, as claimed, obvious?

Justice Yates also noted that:

• the reformulated “Cripps question” was premised on a problem/solution paradigm, and that not all inventions were premised on that paradigm; and
• the expectation of success expressed in the reformulated “Cripps question” was not a prediction of success.  It was, however, not sufficient that the person skilled in the art would consider that it was “obvious to try” or “worth trying” that which the inventor had claimed as an invention.

Justice Yates critically analysed the sequencing of the evidence provided by Pharmacor’s expert cardiologist, Professor Coats, noting the influence that this sequence had on the decisions and choices he made in addressing the hypothetical tasks he addressed in his evidence.

Ultimately, Justice Yates did not accept that the steps, decisions, and choices made by Professor Coats, although well-reasoned, were indicative of the steps, decisions, and choices of the uninventive person skilled in the art at the priority date, or that it was likely that the person skilled in the art would have been directly led as a matter of course to take those steps or to make those decisions and choices.  His Honour considered that the course that Professor Coats took in respect of each of his hypothetical tasks was akin to a “voyage of discovery”.

Finally, Justice Yates expressed his concern about the utility of asking an expert witness to address a task that sought the “solution” to a “problem” when the “solution” to the “problem” must already have been known to the expert.  In this regard, Justice Yates noted that:

• Entresto (which was entered on the ARTG on 20 January 2016 as a sacubitril/valsartan product in the form of a tablet for oral administration to adult patients for the treatment of chronic heart failure with reduced ejection fraction) must have been well-known to Professor Coats when he was asked to undertake his hypothetical tasks.
• No matter how conscientiously Professor Coats undertook the tasks he was assigned, Entresto, as a product for treating heart failure, could not have been eliminated from his mind.
• An expert, with a background knowledge of Entresto, should not have been put in the position of having to address the hypothetical tasks that Professor Coats was asked to address.
• The inquiry under section 7(2) was not whether the claimed invention could be explained as a rational choice of integers, but whether, at the priority date, it was obvious.

Fair Basis and Lack of Best Method

Pharmacor’s challenge to the validity of claim 1 on the basis that (i) the invention, as claimed, was not fairly based on the matter described in the specification and (ii) the complete specification did not describe the best method known to Novartis of performing the invention in claim 1, depended on a finding that integers (i) and (ii) of the pharmaceutical composition were satisfied by a complex containing anionic valsartan, anionic sacubitril and pharmaceutically acceptable cations.  As his Honour found to the contrary, both these invalidity challenges fell away.

Outcome

So, Justice Yates ruled in Pharmacor’s favour, holding that Novartis had not established that Pharmacor threatened to infringe claim 1 of the Patent, and that the term of the Patent had been wrongly extended.  As the term of the Patent had ended on 16 January 2023, three months before Pharmacor’s April 2023 ARTG registrations for Valtresto, Justice Yates considered it appropriate that the Patents Register be rectified to show the Patent as ceasing on 16 January 2023.  Pharmacor’s challenge to the validity of claim 1 was dismissed.

Justice Yates ordered that the parties propose agreed or, if not agreed, competing draft orders by 20 November 2024.  His Honour also noted that, if the parties could not agree on an appropriate costs order, his provisional view was that Novartis should pay Pharmacor’s costs of the issues on which Pharmacor succeeded and that Pharmacor should pay Novartis’ costs of the issues on which Pharmacor did not succeed.

Implications

Justice Yates’ decision is highly relevant for many reasons.  In particular, his Honour’s decision:

1. illustrates the central importance of claim construction to the determination of infringement, validity and PTE cases;

2. provides invaluable guidance on the questions of “ascertainment” and ‘relevance” for the pre-Raising the Bar version of the section 7(3) test for obviousness; and

3. highlights the many pitfalls and difficulties which face a litigant seeking to revoke a patent for obviousness.  Ultimately, his Honour was highly critical of the legal and evidentiary strategy which Pharmacor adopted to its obviousness evidence.  Justice Yates’ criticism emphasised the influence that the sequence of hypothetical tasks given to a key expert had on the decisions and choices he made in addressing these hypothetical tasks in his evidence.  Moreover, his Honour identified a fundamental problem with asking an expert to address a task that seeks the “solution” to a “problem” when the “solution” to the “problem” must already have been known to the expert.

About Pearce IP

Pearce IP is a boutique firm offering intellectual property specialist lawyers, patent attorneys and trade mark attorneys to the life sciences industries (in particular, pharmaceutical, biopharmaceutical, biotech, ag-tech and food tech).  Pearce IP is the 2021 ‘Intellectual Property Team of the Year’ (Lawyers Weekly Australian Law Awards) and was shortlisted for the same award in 2022.  Pearce IP is ranked in IAM Patent 1000 and Managing IP (MIP) IP Stars, in Australasian Lawyer 5 Star Awards as a ‘5 Star’ firm, and the Legal 500 APAC Guide for Intellectual Property.

Our leaders have been recognised in virtually every notable IP listing for their legal, patent and trade mark excellence including: IAM Patent 1000, IAM Strategy 300, MIP IP Stars, Doyles Guide, WIPR Leaders, 5 Star IP Lawyers, Best Lawyers, and Australasian Lawyer 5 Star Awards, and have been honoured with many awards including Australian Law Awards – IP Partner of the Year, Women in Law Awards – Partner of the Year, Women in Business Law Awards - Patent Lawyer of the Year (Asia Pacific), Most Influential Lawyers (Changemaker), among other awards.

H.Lundbeck A/S and Commissioner of Patents [2024] AATA 3319

Highlight

Justice Jackman’s decision is yet another decision in the long-running dispute between Lundbeck and Sandoz regarding Lundbeck’s Australian Patent AU1989036295 for the “(+)-enantiomer of citalopram and process for the preparation thereof” (the Patent).  The current proceeding relates to Lundbeck’s application for review of the Commissioner of Patent’s decision to grant Sandoz a licence to exploit the Patent under section 223(9) of the Patents Act 1990 (Cth) (the Act) and regulation 22.21 of the Patents Regulations 1991 (Cth) (the Regulations).  The grant of this licence is of critical importance to the parties because of its impact on the amount of damages payable by Sandoz to Lundbeck for infringement of the Patent – an issue which is yet to be determined by the Federal Court.

Justice Jackman has overturned the Commissioner’s decision to grant a broad licence under section 223(9) to Sandoz, instead finding that Sandoz is only entitled to a limited licence to sell or otherwise dispose of, import and keep for those purposes 49,382 units of ESITALO products which it had imported by 12 June 2009.

Sandoz has applied to the Federal Court for judicial review of Justice Jackman’s decision.

Background

Before turning to the issues in dispute before Justice Jackman, it is necessary to provide a brief history of the many disputes related to the Patent.  The road to the current proceeding is a complex and winding one, littered with numerous decisions.

The original dispute concerned the validity of a patent term extension (PTE) which had originally been granted based on the regulatory approval of Lundbeck’s LEXAPRO product (the LEXAPRO PTE).  The validity of that extension was successfully challenged on the basis that Lundbeck’s CIPRAMIL product, and not Lundbeck’s LEXAPRO, was the first product included on the Australian Register of Therapeutic Goods (ARTG) which contained the pharmaceutical substance disclosed and claimed in the Patent, being the (+)-enantiomer of citalopram or “escitalopram”.  As a result:

• Lundbeck’s PTE application was invalidly granted based on LEXAPRO;
• Lundbeck had missed the deadline (26 July 1999) for seeking a PTE based on the earlier regulatory approval of CIPRAMIL (the CIPRAMIL PTE); and
• assuming that Lundbeck could obtain an extension of time (EOT) to apply for a PTE based on CIPRAMIL, Lundbeck would only be entitled to a shorter extension of term (about 3½ years to 9 December 2012) than that which had been originally granted (namely, the full 5 years to 13 June 2014).

In July 2005, Lundbeck’s patent attorneys advised Lundbeck regarding the possibility of seeking an EOT in which to file a PTE application based on CIPRAMIL.  Lundbeck did not, however, file an EOT application until four years later in June 2009.

In the intervening four-year period:

• In April 2006, Sandoz commenced a revocation proceeding against the Patent and sought to have the LEXAPRO PTE removed from the ARTG.  Sandoz ultimately dropped the LEXAPRO PTE claim.
• In February 2007, Lundbeck and Sandoz entered into a Settlement Agreement to settle Sandoz’s revocation proceeding.  The settlement was premised on giving Sandoz a “free exit from the case” and then a 2-week early entry in either 2012 or 2014 depending on the outcome of the ongoing litigation with Alphapharm regarding the validity of the LEXAPRO PTE.
• In November 2007, Sandoz applied to the Therapeutic Goods Administration (TGA) to register its escitalopram product, ESITALO, on the ARTG.  Sandoz paid $48,800 (described as 75% of the evaluation fee) for this application.
• In May 2009, Lundbeck notified Sandoz that, if the LEXAPRO PTE was not upheld by the Full Court of the Federal Court of Australia, Lundbeck would seek an order reflecting the CIPRAMIL PTE to 9 December 2012.
• Following the Full Court decision invalidating the LEXAPRO PTE, on 12 June 2009, Lundbeck applied for the CIPRAMIL PTE and for an EOT until 12 June 2009 to make that application.  Lundbeck notified Sandoz of its intentions on the same day that it applied for the CIPRAMIL PTE and the related EOT.
• The Patent expired on 13 June 2009, pending the outcome of the CIPRAMIL PTE and EOT.

Three days later, on 15 June 2009, Sandoz launched its escitalopram product in Australia.  Sandoz commenced selling the first batch of its generic escitalopram product on 16 June 2009.  Sandoz continued to import its generic escitalopram into Australia and to promote and sell it in Australia throughout the ultimately extended term of the Patent (that is, through to 9 December 2012).

Three interrelated proceedings then continued their winding and intertwined course:

• CIPRAMIL PTE and related EOT proceedings: The Commissioner of Patents ultimately accepted (with effect from 25 June 2014) Lundbeck’s CIPRAMIL PTE (which extended the Patent to 9 December 2012) and related EOT, with Sandoz failing in its subsequent opposition to the Commissioner’s decision.
• Sandoz section 223(9) licence application: In December 2013, Sandoz filed the application to the Commissioner (which is the subject of the present proceedings) for a licence to exploit the invention claimed in the Patent under s 223(9).  Lundbeck opposed Sandoz’s licence application.  The licence proceedings were stayed until March 2016 pending the outcome of the appeal in the CIPRAMIL PTE/EOT opposition litigation.  In April 2019, the Deputy Commissioner held that Sandoz should be granted a section 223(9) licence commencing on 14 June 2009 and continuing until the expiration of the term of the Patent on 9 December 2012.  The licence was expressly stated to be personal to Sandoz, that is, the licence belonged to Sandoz, and it was transferred with Sandoz if Sandoz changed hands by acquisition or merger but could not be otherwise assigned or transferred, and could not be sublicensed.  In May 2019, Lundbeck applied for a review of this decision by commencing the present proceeding in the AAT.  On 3 February 2020, Lundbeck amended its reasons for application for review in this proceeding, to abandon an argument that the terms of any statutory licence should include a royalty obligation.
• Lundbeck infringement proceedings: In June 2014, Lundbeck commenced infringement proceedings against Sandoz, alleging infringement of the Patent during the period of the retrospectively granted PTE.  In those proceedings, Sandoz denied that its conduct constituted exploitation of the Patent, and alternatively contended that by reason of the Settlement Agreement, Sandoz had a contractual licence from Lundbeck to exploit the Patent during the extended term of the Patent.  In August 2020, the Full Court of the Federal Court of Australia found that Sandoz had a defence to infringement based on the Settlement Agreement and set aside the declaration and order for damages contained in the February 2019 orders.  In March 2022, the High Court reversed the Full Court decision in part and remitted the proceedings for the recalculation of damages and pre-judgment interest payable to Lundbeck.  The High Court also directed that the parties had liberty to apply to the primary judge for a stay of the remitted proceedings pending the determination of the present proceeding before the AAT.  The primary judge granted this stay on 4 July 2023.

Key Issues

There were two key issues before Justice Jackman:

1.  Was Sandoz eligible to apply for a statutory licence?

2.  If it was, what were the appropriate (i.e. reasonable) terms of such a licence?

In relation to the first question, the key issue was whether, within the relevant time, Sandoz exploited or took definite steps to exploit the invention concerned “because of” Lundbeck’s failure to apply for the CIPRAMIL PTE within the time allowed.  The time for Lundbeck to make that application expired on 26 July 1999, approximately 10 years before the application was ultimately made.

His Honour stated that the causal language “because of” in section 223(9) required that the person seeking the licence had relied on one of the three matters referred to in that section, that is, the failure to do the relevant act within the time allowed, or the lapsing of the patent application, or the ceasing of the patent.  Justice Jackman agreed with the parties’ view that, to prove the requisite reliance, it was sufficient to demonstrate that the relevant matter would have made a material contribution to Sandoz’s conduct and decision-making.

While his Honour considered that Sandoz was aware that it was running a calculated risk in importing ESITALO while the Full Court had not yet determined whether to grant the CIPRAMIL PTE and EOT, Justice Jackman accepted Sandoz’s submission that Sandoz had exploited the invention because of Lundbeck’s failure to file the CIPRAMIL PTE application within time.  If Lundbeck had applied for the CIPRAMIL PTE by 26 July 1999, the correct expiry date of 9 December 2012 would have been established well before 2009.  However, because Lundbeck did not do so, Sandoz expected the Patent would cease on 13 June 2009.  This expectation materially contributed to Sandoz’s decision to import its ESITALO product, because it reduced the risk confronting Sandoz in preparing for and undertaking its launch.

Accordingly, Justice Jackman held that Sandoz’s importation and keeping of its ESITALO products in late May and early June 2009 were done because of the failure by Lundbeck to apply for the CIPRAMIL PTE by 26 July 1999.  Sandoz was therefore entitled to apply for a licence pursuant to section 223(9).

Lundbeck also argued that Sandoz could not obtain a statutory licence because section 223(9) did not apply to an exploitation which occurs while the patent is in force and which is authorised.  Justice Jackman disagreed, stating that the language used in section 223(9) and regulation 22.21 does not require an act of exploitation to be unauthorised or to constitute an infringement.  In his Honour’s view, the definition of “exploit” in the Act does not import a requirement that, in order to fall within the meaning of “exploit”, the act must be unauthorised or unlicensed.  He therefore rejected the submission that an act of exploitation must be unauthorised or unlicensed in order to qualify for a licence under section 223(9).  Justice Jackman also did not consider that section 223(9)’s language referred only to exploitation when there is no patent on foot.

Having decided that Sandoz was entitled to a licence, Justice Jackman then turned to the question of the appropriate (i.e. reasonable) terms of such a licence.  Justice Jackman considered that there was an initial issue to be determined as to the intended purpose and scope of section 223(9) and regulation 22.21(2), which in turn informed the decision as to what are reasonable terms for the licence.  On this issue, Justice Jackman held that:

• the purpose and scope of a section 223(9) statutory licence is to protect persons who exploited (or took definite steps to exploit) the invention claimed in the Patent by 12 June 2009 because of Lundbeck’s failure to make an application for an extension of the term of the Patent by 26 July 1999; and
• the licence should be framed to protect any such person for such acts of exploiting (or taking definite steps to exploit) the invention.

Justice Jackman reached this view based on his interpretation of the timeframes provided in section 223(9) of the Act and regulation 22.21(2)(c) of the Regulations:

• Section 223(9) required that Sandoz had before the day on which the application for extension of time had been advertised (i.e. 23 July 2009), 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; and
• Regulation 22.21(2)(c) required that Sandoz had availed itself of or exploited, or took definite steps by contract or otherwise to avail itself of or exploit, the invention within the period of time extended under section 223(9) (i.e. between 26 July 1999 and 12 June 2009).

Sandoz had exploited the invention claimed in the Patent by importing 49,382 units of escitalopram into Australia before 12 June 2009.  These units were packaged in a way that was specific to the Australian market, which meant that it was only commercially viable to sell them in Australia.  Sandoz was therefore entitled to a licence permitting it to import and sell those 49,382 units.

Lundbeck accepted that a licence under section 223(9) was not necessarily confined to permitting the acts of exploitation of (or the taking of definite steps to exploit) the invention within the relevant timeframe, but could extend to subsequent acts if the subsequent acts were causally related to the acts done within the timeframe.  So, if Sandoz’s importations and sales made after 12 June 2009 were causally connected to the importations before 12 June 2009 then they might qualify for protection under the statutory licence.  The evidence, however, did not establish this causal connection, instead showing that, with or without the importation before 12 June 2009, Sandoz would have launched on or after 15 June 2009.  Accordingly, Justice Jackman found that no sufficient basis had been shown for a licence which would permit sales by Sandoz of its escitalopram product after 12 June 2009, except in relation to the 49,382 units which had been imported before that date.

Sandoz proposed an alternative interpretation of the timeframes set out in section 223(9) and regulation 22.21(2)(c), arguing that these timeframes had the effect only of setting out the criteria which qualify a person to make an application for a licence, but did not constrain the purpose or scope of the licence itself.  Justice Jackman rejected this interpretation, but stated that, even if this alternative interpretation was correct, he would not have granted Sandoz a licence to sell its ESITALO product from 15 June 2009 to 9 December 2012 (except for the sale of the 49,382 units which had been imported by 12 June 2009).  His Honour considered that, while it was reasonable for Sandoz to continue selling ESITALO in the period to 9 December 2012, the fact that Sandoz’s conduct was reasonable was no more than one of the factors to be taken into account in the decision as to what terms were reasonable for the statutory licence, and was not in itself determinative.  Justice Jackman considered that Sandoz had run a calculated legal risk, seeking a sufficiently attractive commercial reward to justify running that risk, and with the benefit of the information reasonably available to it as to the potential risk and reward.

Outcome

Accordingly, Justice Jackman held that no sufficient basis had been shown for a licence which would permit sales by Sandoz of its escitalopram product after 12 June 2009, except in relation to the 49,382 units which had been imported before that date.

Justice Jackman was satisfied that Sandoz was entitled to a section 223(9) licence but limited the scope of the licence which had been granted by the Commissioner of Patents.  Justice Jackman did not consider it reasonable for the licence to be for the period from 14 June 2009 to 9 December 2012, and so ordered that the licence be limited to exploitation (including by way of sale) of the invention claimed in the Patent in relation to the 49,382 units of escitalopram which it had imported by 12 June 2009.

Implications

Justice Jackman’s decision provides important guidance on section 223(9) licences, establishing that such licences should be confined to protecting exploitation (or definite steps) that occurred because of the patentee’s failure to do the relevant act within the time allowed.  Companies seeking to rely on this section will need to carefully demonstrate the causal connection between their exploitation activities and the patentee’s failure to do the relevant act.

Further, the reasonable terms of any licence granted are informed by the intended purpose and scope of section 223(9) and regulation 22.21(2).  This led Justice Jackman to limit the scope of the licence to the 49,382 units of escitalopram which Sandoz had imported into Australia before 12 June 2009.  As Sandoz’s later importations and sales were not causally linked to the importation before 12 June 2009, the licence did not extend to these further acts of exploitation.

About Pearce IP

Pearce IP is a boutique firm offering intellectual property specialist lawyers, patent attorneys and trade mark attorneys to the life sciences industries (in particular, pharmaceutical, biopharmaceutical, biotech, ag-tech and food tech).  Pearce IP is the 2021 ‘Intellectual Property Team of the Year’ (Lawyers Weekly Australian Law Awards) and was shortlisted for the same award in 2022.  Pearce IP is ranked in IAM Patent 1000 and Managing IP (MIP) IP Stars, in Australasian Lawyer 5 Star Awards as a ‘5 Star’ firm, and the Legal 500 APAC Guide for Intellectual Property.

Our leaders have been recognised in virtually every notable IP listing for their legal, patent and trade mark excellence including: IAM Patent 1000, IAM Strategy 300, MIP IP Stars, Doyles Guide, WIPR Leaders, 5 Star IP Lawyers, Best Lawyers, and Australasian Lawyer 5 Star Awards, and have been honoured with many awards including Australian Law Awards – IP Partner of the Year, Women in Law Awards – Partner of the Year, Women in Business Law Awards - Patent Lawyer of the Year (Asia Pacific), Most Influential Lawyers (Changemaker), among other awards.