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Is Your Patent Licence Exclusive?

Victoria Konya | November 3rd, 2015

You might think you have the ability to enforce your rights against a patent infringer as an 'exclusive licensee'. But the case of Bristol-Myers Squibb Company v Apotex Pty Ltd [2015] FCAFC 2 will make you change your mind.

The case brings to light which rights are granted to a licensee for them to have sufficient exclusivity to enforce their rights against patent infringers.

What happened with the case?

Otsuka Pharmaceutical owns a patent which relates to an improved form of aripiprazole, an antipsychotic drug.  In Australia, Bristol-Myers Squibb (BMS) sells aripiprazole under licence from Otsuka.

Is Your Patent Licence Exclusive.jpeg

Apotex, a generic pharmaceutical company, began selling generic-branded pharmaceutical products containing aripiprazole in 2009. This unexpected competition resulted in BMS commencing patent infringement proceedings against Apotex. However, Apotex argued that BMS had no standing to sue for infringement because it was not an ‘exclusive licensee’ as defined in section 120 of the Patents Act.

BMS claimed it was an exclusive licensee, according to an agreement between BMS and Otsuka, which permitted BMS to engage in ‘advertising, marketing, promotion, sale and distribution’ of aripiprazole products.

In October 2013, the Federal Court held that BMS was not the exclusive licensee of the patent under the terms of the licence.   The Federal Court found that a licence is exclusive when all persons, including the patent owner, are excluded from exploiting the relevant patent.  However, in this case, Otsuka reserved for itself the exclusive worldwide right to manufacture, or have manufactured, aripiprazole in its various forms.

BMS then appealed to the Full Federal Court and judgment was handed down on 23 January 2015.

The Court’s decision on appeal

The Full Federal Court dismissed BMS’s appeal and agreed with the primary judge’s findings that an exclusive licence cannot be one that reserves to the patent owner, or any third person, any residual right concerning exploitation of the invention, and therefore there can only be one exclusive licensee.

As a consequence, BMS was not an ‘exclusive licensee’ under the Patents Act and was not entitled to sue Apotex for infringement of the patent.

Handpicked related article: The In-Depth Guide to IP Commercialisation

What are the implications?

This decision highlights the importance of parties understanding the nature of the rights granted under a patent licence.

  •  If a patent owner wants a licensee to be able to issue patent infringement proceedings under s.120 of the Patents Act, an exclusive licence must be granted, and the patent owner must forego any of its rights to exploit the patent in Australia.
  • If a licensee wants to have enforcement rights under s.120, they will need to ensure that the patent owner has not retained any exploitative rights with the patent. If a licensee is non-exclusive, they will need to rely on the cooperation of the patent owner to enforce the patent rights with respect to infringements.
  • Existing licence agreements may need to vary in light of the decision handed down in the BMS case. Consider this scenario:
    • The patent owner enters into a distribution agreement with a distributor.
    • The distribution agreement provides that the distributor has the sole right to issue enforcement proceedings against any third parties who infringe the patent.
    • However, under the BMS decision, the granting of a right to distribute alone, will not constitute an exclusive licence for patent enforcement purposes.
    • This means that the distributor cannot issue enforcement proceedings under s.120 because it is not an exclusive licensee and the patent owner cannot issue enforcement proceedings because it has contractually granted this sole right to the distributor.  Consequently, neither the patent owner, nor the distributor can issue enforcement proceedings.

What does this mean for you?

This case highlights the need to carefully audit and review existing contractual agreements that you might have relating to patents. You should ensure that your rights are appropriately reflected and that enforcement action can be taken. 

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Victoria Konya

Victoria is a commercial and intellectual property (IP) lawyer who represents a large number of small to medium enterprises and high net worth clients in a broad range of complex commercial matters, and in the protection and commercialisation of IP.