Sandoz secures a stay in the long-running escitalopram litigation

The Federal Court has granted Sandoz's application for a stay of proceedings remitted by the High Court, in the long-running Lexapro/escitalopram patent dispute. This will allow for the Administrative Appeals Tribunal to hear and determine Lundbeck's application for review of the decision of the Commissioner of Patents to grant Sandoz a licence under section 223(9) of the Australian Patents Act 1990 (Cth), and any successive appeals therefrom, before the remitted proceeding may continue.

The stay application decision contains some helpful guidance about the interactions between patent infringement proceedings and proceedings in which an alleged infringer seeks a statutory licence under section 223(9) of the Act. (Clayton Utz acts for Sandoz in relation to this proceeding and the ongoing escitalopram litigation.)

A complex web of litigation

As Justice Yates notes in the first paragraph of his Honour's recent judgment, the proceeding is "part of a complex web of litigation", concerning a patent relating to the pharmaceutical substance, escitalopram, used for the treatment of 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 in respect of acts occurring during the extended term of the patent. 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. Justice Jagot made declarations and orders for damages, interest and costs accordingly. On appeal, the Full 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. Lundbeck obtained special leave to appeal to the High Court of Australia, and, in March 2022, the High Court delivered judgment, holding that Sandoz's contractual licence did not include the extended term of the Patent, while also making several other findings in Sandoz's favour that warranted remitting the proceeding back to the primary judge.

In parallel with the above litigation, Sandoz applied to the Commissioner of Patents in 2013 for a licence to exploit the invention claimed in the Patent, pursuant to section 223(9) of the Act. At all times in the infringement proceeding, the application for a statutory licence has been pleaded as part of Sandoz's defence to infringement. On 11 April 2019, the application was granted, and the Commissioner's resulting section 223(9) licence remains in force. Lundbeck subsequently applied to the Administrative Appeals Tribunal (AAT) for review of the Commissioner's decision, but that proceeding was effectively stayed, in 2020, pending the outcome of the High Court appeal.

The remitted proceeding

The High Court noted in its reasons for judgment that there was no dispute between the parties that the order remitting the matter to the primary judge for the recalculation should be framed to ensure that it did not prejudice the outcome of the pending review of the Commissioner's decision by the AAT.

The High Court's orders remitting the matter thus included an order that:

"(T)he parties be given liberty to apply to the primary judge for a stay of the remitted proceedings pending the determination of the proceedings relating to the licence granted to the appellant by the Commissioner of Patents on 11 April 2019 under s 223(9) of the Patents Act 1990 (Cth)."

Exercising that liberty, Sandoz applied for a stay of the remitted proceeding, pending the final determination of the AAT's review of the Commissioner's decision to grant to the section 223(9) licence and the final determination of all appeals and applications for special leave to appeal therefrom.

Lundbeck resisted the stay application on various grounds, including by alleging that Sandoz's liability for infringement and Lundbeck's entitlement to damages were res judicata; that the only issue remaining in the remitted proceeding was the "purely mechanical recalculation of damages"; and that this task was merely consequential on the orders already made. Lundbeck further submitted that the section 223(9) licence was of no consequence, and could be of no effect, on the outcome of the remitted proceeding.

Judgment on the stay application

Justice Yates did not accept Lundbeck's submissions. His Honour considered that a number of interrelated issues were presently before the Court, including the scope of the remitted proceeding itself.

In relation to Lundbeck's argument that the section 223(9) licence was of no consequence, his Honour noted two important matters:

1. First, section 223(9) speaks of the "prescribed provisions" (found in reg 22.21), having effect "for the protection or compensation" of relevant persons. His Honour noted that the regulation speaks of the licence being granted by the Commissioner, not by the patentee or the Commissioner on behalf of the patentee, and is a statutory measure to overcome the disadvantage or prejudice that relevant persons suffer in prescribed circumstances. If Lundbeck's argument that a section 223(9) licence can only be justified whether there is a finding of infringement were correct, his Honour noted that it was arguable the statute envisages that a finding of infringement in court proceedings would not preclude the grant of such a licence.
2. Secondly, it was open to be argued that, on the face of its orders, the High Court had in mind that the outcome of the remitted matter could be affected by whether the grant of the section 223(9) licence is upheld on appeal. His Honour emphasised the comments made by the plurality that the High Court's orders should not prejudice the outcome of the AAT's review.

His Honour considered that the determination of the remitted proceeding would not be, as Lundbeck would have it, a "purely mechanical" matter, involving only "matters of arithmetic." Given the "prodigious amount of litigation" between the parties, Justice Yates was also not persuaded by Lundbeck's argument that a stay of the remitted proceeding would cause unacceptable further delay.

Finally, his Honour also rejected an argument by Lundbeck that the High Court's orders could be interpreted as granting the parties liberty to apply for a stay of the execution of any orders for damages and interest that may result from the remitted proceeding. In all the circumstances, his Honour determined that a stay of the remitted proceeding should be granted, with costs.