High Court delivers judgment in Lexapro litigation

The High Court found that Sandoz's contractual, "irrevocable, non-exclusive licence to the Patent" did not include the extended term of the Patent, but also determined that exclusive licensee, Lundbeck Australia, had no standing to sue; dismissed the statutory misleading or deceptive conduct claims; and ruled in Sandoz's favour regarding pre-judgment interest on damages.

The judgment provides some valuable lessons for innovators and generics alike, and anyone interested in patents relating to pharmaceutical substances that may be subject to the extension of term regime under Chapter 6, Part 3 of the Patents Act 1990 (Act). In this article, we take a look at a few of the key takeaways from the High Court's judgment.

The High Court's judgment means the escitalopram litigation is far from over yet. In 2019, the Commissioner of Patents granted Sandoz a statutory licence to exploit the invention claimed in the Patent under section 223(9) of the Act, one of only two such licences ever awarded in Australia. The Commissioner's decision is currently under review in the Administrative Appeals Tribunal, and the High Court confirmed that the order remitting the matter for re-calculation of damages shall not prejudice the outcome of that pending review. (Clayton Utz acts for Sandoz in relation to this proceeding and the ongoing escitalopram litigation.)

Background: a long and protracted history

The escitalopram litigation, which has been running in various forums in Australia since the early 2000s, concerns the extension of term of a patent relating to escitalopram, which is used as a treatment for depression. The patent was owned by Danish company, Lundbeck, and licensed to its subsidiary Lundbeck Australia Pty Ltd. The patent's standard 20-year term expired on 13 June 2009. Sandoz, and several other pharmaceutical companies, launched generic escitalopram products in Australia shortly thereafter, and have continued to supply their products ever since.

Years later, on 25 June 2014, Lundbeck was granted a retrospective extension of term of the Patent, to 9 December 2012. The Lundbeck parties sued for patent infringement under section 79 of the Act, which confers on a patentee the right to start proceedings for infringement in respect of acts occurring during the extended term of the patent, where the extension is granted after patent has expired. The Lundbeck parties also claimed that Sandoz's sales to pharmacists, combined with a failure to warn pharmacists about the Patent, constituted statutory misleading or deceptive conduct in contravention of the Trade Practices Act 1974 and the Australian Consumer Law.

At first instance, the Federal Court determined that Sandoz's sales during the extended term of the Patent constituted patent infringement and statutory misleading or deceptive conduct. Her Honour issued declarations and made orders for damages, interest and costs accordingly. On appeal, the Full Court of the Federal Court reversed the primary judge's rulings, holding that Sandoz had a complete defence due to a licence Sandoz obtained under an agreement with Lundbeck in February 2007.

Construction of the contractual licence: when a licence to a Patent is not a licence to the Patent…

The settlement clause was expressed as providing Sandoz an "irrevocable non-exclusive licence to the Patent", which commenced "from" one of four possible dates, and without expressing any end date. The parties were all agreed that the relevant start date was 31 May 2009, two weeks before the original patent expiry on 13 June 2009. Lundbeck argued that the licence came to an end when the original term of the Patent expired, and was not revived by reason of the post-expiry extension of term. Sandoz argued that once the licence had commenced, it was irrevocable, had no end date, and continued to apply during the extended term of the Patent.

The High Court had to decide whether the expression "licence to the Patent" means a "freedom to exploit the invention that is the subject matter of the Patent" or whether the meaning of that expression also includes "the implication that the freedom is limited to the initial term of the Patent without regard to any extension". In resolving this issue, the High Court concluded that a reasonable person in the position of the parties would have intended to limit the licence to the initial term of the Patent. The Court concluded that the licence expired with the expiration of the original term of the Patent on 13 June 2009 and was not resurrected with the extended patent.

Exclusive licensees have no standing under section 79 of the Patents Act

The High Court found that the right to bring proceedings conferred by section 79 of the Act in respect of acts occurring between the expiry of the original term of a patent, and the date an extension of term is granted, are limited to the patentee and did not extend to the exclusive licensee. Accordingly, Lundbeck Australia, as exclusive licensee, did not have standing to sue Sandoz for infringement, and only Lundbeck Denmark as patentee was entitled to infringement damages. The Court remitted the matter for re-calculation of damages, due to this and other findings that affect the quantification calculation.

The Court's decision on this point reflects the clear and unambiguous language of the statute. However, it also highlights the fact that, in respect of post-expiry extensions of term, exclusive licensees are not in the same position to commence infringement proceedings and claim for damages as they are during the standard term of the patent. This may well have a bearing on the commercial value that parties attribute to any arm's-length exclusive licence.

Patentees cannot take misleading or deceptive conduct claims for granted

Reversing the decision of the primary judge, and dismissing the proceeding of Lundbeck's related entity CNS Pharma, the Court held that Sandoz's failure to warn pharmacists about the existence of the Patent at the time of sales (even though the patent had expired at the time) did not amount to misleading or deceptive conduct under the Trade Practices Act 1974 and the Australian Consumer Law. One can hardly imagine that a dispensing pharmacist would have any interest in knowing whether he/she may be sued for infringement if an expired patent was resurrected some years later, especially when pharmaceutical companies are not known for suing dispensing pharmacists.

In reaching this view, the High Court applied orthodox principles, and held that there was no evidence to establish that pharmacists would have held a reasonable expectation that Sandoz would inform them of the possibility that they might be exposed to proceedings for infringement, if and when an extension of the term of the Patent came to be granted in the future. In a separate judgment, Justice Edelman explained further that an implied representation of fact may be misleading or deceptive if the representation, whilst true, is subject to an undisclosed qualification. However, the undisclosed qualification must be material. His Honour distinguished the present case from other authorities where the relevant patent was on foot at the time of the relevant sales. His Honour held that any implied representation by Sandoz that the products did not infringe was factually true, at the relevant time, because the patent had expired.