Lundbeck-Sandoz Saga Continues: Federal Court Determines Historical Licence Scope in Long-Running Patent Litigation

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.

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