When exclusive licensees have no rights to sue or recover damages during patent term extensions

In February 2021, H. Lundbeck A/S (Lundbeck) was granted special leave by the High Court to appeal the 2020 Full Court decision^[1] involving the long running litigation in relation to the blockbuster antidepressant medication, Lexapro^®[2] (Lundbeck decision).  In that appeal, the High Court will consider whether Lundbeck Australia (LA), the exclusive licensee in Australia of AU 623144, (the Patent), has standing to sue under Section 79 of the Patents Act 1990 (the Act) in relation to acts of infringement during the extended term of the Patent.

Exclusive licensee’s rights in relation to unextended patents

In Australia, only a patentee or exclusive licensee has standing to sue for infringement (see our recent article here)^[3] giving rise to significant implications for patent enforcement where the licence is not exclusive.

The Lundbeck decision did not disrupt the prevailing case law in relation to the standing of the exclusive licensee to sue during the original patent term, but provides useful insight into the nature of an exclusive licence.  Part 2 of this two-part blog to be published next week will discuss in depth the nature of exclusive patent licences.

Exclusive licensee’s rights in relation to extended patents

It is most common for patent term extensions to be granted during the original term of a standard patent, that is, before the expiry of the original 20-year term (pre-expiry extension).  Where there is a pre-expiry extension, an exclusive licensee may start proceedings for acts of infringement committed at any time during the standard term of the patent and during the extended term of the patent.^[4]

In the case of post-expiry extensions, section 79 of the Act provides that once the extension of term is granted, “the patentee … has the same rights to start proceedings” in respect of acts occurring after the expiration of the original term of the patent.  In the Lundbeck decision, the Full Court considered the effect of s79 of the Act on the standing of an exclusive licensee for the first time.  The Full Court held that, based on the plain language of s79, an exclusive licensee does not have the right to start proceedings because s79 only refers to the patentee’s right to start proceedings.

Patent term extensions granted after the expiry of the original term (post-expiry extension) are rare.  Lundbeck’s fact scenario was extremely unusual in that the patent term extension was granted after the ultimate expiry of the extended term of the Patent, and – importantly – after the time in which all infringing acts took place.

If there is a local exclusive licensee and an offshore patentee that does not trade in Australia, the fact that the local exclusive licensee has no standing to sue in a post-expiry extension scenario will present a problem with recovering damages for infringement.  This is because the offshore patentee may not suffer any significant (direct) damage as a consequence of the infringement.

Although post expiry extensions are rare, the approach of the Full Court to s79 of the Act is significant, and where a late application for extension of term undergoes opposition, the grant of the extension may well occur after the expiry of the original term of the patent.  The Lundbeck decision undercuts the commercial reason for extending a patent term, which is to extend the time in which damages can be recovered for any infringement.  Industry will be keenly watching the direction of the High Court on these issus.

In the meantime, the important message for patent licensees taking part in infringement proceedings are:

• Patent licences must be exclusive in order for the licensee to have standing to sue, and the ability to recover damages (particularly important for local sponsors of patented products where the patentee is offshore and does not trade locally);
• To be exclusive, a licence must be granted directly by the patentee and should include all rights to exploit the patented invention;
• Any rights that the patentee wishes to reserve should be licensed back from the exclusive licensee, preferably in a separate, subsequent agreement;
• Once executed, an exclusive licence should be recorded on the Register of Patents, at least prior to commencing any action;
• Patents for products which receive regulatory approval late in the standard patent term run the risk that a request for extension of term will be granted post expiry, and patentees and exclusive licensees should be aware that damages recovery in that case may be problematic.

Pearce IP has extensive expertise in managing patent litigation involving local exclusive licensees and offshore patentees, and a strong track record in advising clients in relation to strategies for extension of patent term.  If you would like to discuss your patent strategies, please contact us.

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

[2] H. Lundbeck A-S & Anor v Sandoz Pty Ltd; CNS Pharma Pty Ltd v Sandoz Pty Ltd [2021] HCATrans 13 (11 February 2021)

[3] Ibid, s 120(1)

[4] Section 78, which deals with infringement during the extended term of patents having a pre expiry extension, refers to “the exclusive rights of the patentee” with no indication that these rights cannot be assigned. Section 78 also limits what constitutes infringement during the extended term.