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Is Your Patent Licence Exclusive?

Michael McDonald | October 21st, 2015

If you are a so-called ‘exclusive licensee’, you probably think you have the ability to enforce your rights against a patent infringer.  But the recent case of Bristol-Myers Squibb Company v Apotex Pty Ltd [2015] FCAFC 2, indicates that you might be wrong.

The case explores which rights need to be granted to a licensee in order for them to have sufficient exclusivity for the purpose of enforcing rights against patent infringers.

Facts of the case

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

In 2009, Apotex, a generic pharmaceutical company, began offering for sale generic-branded pharmaceutical products containing aripiprazole.  Then BMS commenced 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, pursuant 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 with respect to 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 therefore not entitled to sue Apotex for infringement of the patent.

What are the implications?

This decision highlights the importance of parties understanding the nature of the rights that are being 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 in relation to 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 be varied 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.

This highlights the need to carefully audit and review existing contractual agreements which relate to patents to ensure that the parties’ rights are appropriately reflected and that appropriate enforcement action can be taken.

A significant part of our practice at mdp is protecting, licensing and commercialising various technologies and forms of intellectual property.

Michael McDonald

Michael McDonald

Director, BA LL.B at mdp
Michael is a highly respected and pre-eminent lawyer, commercial advisor and businessman with a career spanning more than 35 years across corporate, commercial and intellectual property law. He has specialist expertise in, and passion for, commercialising and growing Australian businesses both in Australia and internationally.
Michael McDonald

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