[authors: Amalia Stone, Mark McLennan, Claudia Adams]
The Federal Court of Australia held that Bristol-Myers Squibb Company (BMS) is not the exclusive licensee of a patent relating to aripiprazole under the terms of the licence granted to it by Otsuka Pharmaceutical Co Ltd (Otsuka).
As a result, BMS did not have standing to sue Apotex Pty Ltd for infringement of the Otsuka patent.
On the facts of this case, the decisive points in finding that the licence was not exclusive were:
1. the exclusion from the licence granted to BMS of a right to manufacture aripiprazole, and
2. the right to manufacture was reserved to Otsuka.
Licensees wanting an exclusive licence sufficient to give them standing under the Australian Patents Act need to carefully review patent rights granted to them to ensure they include all exploitation rights, including in particular a right to manufacture and are to the exclusion of all other parties, in all fields of use, including the patentee.
Without such an exclusive licence, a licensee will not be able to enforce the patent rights against third parties in its own name.
The decision of Justice Yates of the Federal Court of Australia in Bristol-Myers Squibb Company v Apotex Pty Ltd (No 5)1 concerned a patent held by Otsuka Pharmaceutical Co Ltd (Otsuka). The invention claimed in the patent relates to an improved form of aripiprazole, an antipsychotic drug, having particular chemical properties.
Bristol-Myers Squibb Company (BMS) sells aripiprazole in Australia as ‘Abilify’ under licence from Otsuka. In 2009, Apotex Pty Ltd (Apotex), a generic pharmaceutical company, began offering for sale generic-branded pharmaceutical products containing aripiprazole.
BMS, as the purported exclusive licensee of the Otsuka patent, subsequently commenced proceedings in the Federal Court of Australia alleging that Apotex had infringed the patent. In response to BMS’s claim of infringement, Apotex argued that BMS had no standing to sue for infringement, as they were not an ‘exclusive licensee’.
While Apotex also filed a cross-claim against BMS and Otsuka, arguing that the patent was invalid, the focus of this article is the question of what constitutes an exclusive licensee in accordance with the Patents Act 1990 (Cth) (Patents Act).
Licence Agreement between BMS and Otsuka
While it was accepted in proceedings that BMS was a licensee of the patent, Apotex disputed whether BMS was an exclusive licensee.
BMS claimed its entitlement as an exclusive licensee under a ‘Restated Development and Commercialization Collaboration Agreement’ (the Agreement) between BMS and Otsuka.
Under the Agreement, BMS was entitled to engage in ‘advertising, marketing, promotion, sale and distribution’ of aripiprazole products. Importantly, Otsuka reserved for itself the exclusive worldwide right to manufacture, or have manufactured, aripiprazole in its various forms.
Patents Act – ‘exclusive licensee’
Under section 120(1) of the Patents Act, only a patentee or an exclusive licensee has standing to commence infringement proceedings.
An exclusive licensee for the purposes of the Patents Act is defined to mean:
... a licensee under a licence granted by the patentee and conferring on the licensee, or on the licensee and persons authorised by the licensee, the right to exploit the patented invention throughout the patent area to the exclusion of the patentee and all other persons.
The Patents Act defines the term “exploit” in relation to an invention as including:
a. where the invention is a product—make, hire, sell or otherwise dispose of the product, offer to make, sell, hire or otherwise dispose of it, use or import it, or keep it for the purpose of doing any of those things; or
b. where the invention is a method or process—use the method or process or do any act mentioned in paragraph (a) in respect of a product resulting from such use.
The right to ‘exploit’
Apotex submitted that as the right to ‘make’ is a specific activity included in the definition of ‘exploit’ within the Patents Act, and BMS did not have a licence to manufacture aripiprazole, BMS did not have an exclusive licence to exploit the invention the subject of the Otsuka patent. In response, BMS argued that the licence ‘should not be denied the status of an exclusive licence simply because it does not confer on BMS the right to manufacture aripiprazole.’
In determining whether or not an exclusive licence must confer an exclusive right to all activities included in the term ‘exploit’, Justice Yates looked at the High Court of Australia authority of Re British Nylon Spinners Ltd  HCA 28 (British Nylon). In British Nylon the High Court considered whether a patent licence for use in limited fields could be considered exclusive for the purposes of the Patents Act 1952 (Cth) (which had a definition of ‘exploit’ substantially similar to the current Patents Act definition, but expressed to be exhaustive). The High Court rejected the patentee’s submission that a patent licence, for use within a limited field, conferred a right to make use, exercise and vend the patented invention throughout Australia "to the exclusion of all other persons, including the patentee". After British Nylon, common thought was that only a licence that was exclusive in all fields of use, with all rights included in the definition of ‘exploit’ constituted an exclusive patent licence.
A subsequent Queensland case, Grant and Another v Australian Temporary Fencing Pty Ltd  QSC 194 took a different approach (followed by the subsequent case relating to an interlocutory injunction application of Pharmacia Italia SpA and Another v Interpharma Pty Ltd  FCA 1675) where the court there noted that the definition of ‘exploit’ under the current Patents Act definition is non-exhaustive, in that it provides for exploit to be ‘make, hire, sell or otherwise dispose…use or import’ and consequently found that a licence may be an exclusive licence for the purpose of the current Patent Act which does not include all nominated ‘exploit’ acts (there the licence did not include the right to import).
Justice Yates expressly disagreed with this line of cases, stepping back and looking at the intent of section 13(1) of the Patents Act, which gives the patentee the twin exclusive rights to exploit the invention, and authorise another to exploit the invention. In Justice Yates’ conception, the definition of ‘exploit’, although expressed disjunctively, is all encompassing in relation to a broad range of activities, rather than non-exhaustively listing example activities that are covered by separate rights. In particular:
Justice Yates expressly disagreed with the emphasis placed in Grant on the exhaustive nature of the 1952 Patents Act definition of ‘exploit’ and the inclusive 1990 Patents Act definition, looking instead at to whom the right to ‘exploit’ is granted under the definition of ‘exclusive licence’ under each Act. Under the 1990 Patents Act, the definition of ‘exclusive licence’ refers to ‘a licensee under a licence…conferring on the licensee…the right to exploit’, rather than a reference to one or more licensees with rights to exploit (further discussed below); and
Justice Yates considered section 14 of the Patents Act in relation to assignment to support this interpretation, which expressly provides that a patent may be assigned for part of the patent area, but does not so provide for the possibility of assigning separate ‘exploit’ rights in relation to a patent.
Exploitation to the exclusion of the patentee and all others
Justice Yates held that the definition of “exclusive licensee” in the Patents Act refers to “the conferral by the patentee of a single licence that precludes the patentee, and any person deriving authority from the patentee, from exercising the rights granted by the patent.” His Honour noted that the legal effect of a licence must be that all persons, including the patentee, are excluded from exploiting the relevant patent. As the Agreement specifically carved out the right to manufacture aripiprazole from the rights granted to BMS (and reserved those rights to Otsuka), his Honour was unable to accept that the Agreement granted an exclusive licence giving BMS standing to sue for infringement.
On the facts of this case, the exclusion from the licence granted to BMS of a right to manufacture the product was decisive.
Ultimately BMS and Otsuka were successful in their claim of infringement. However, as BMS lacked standing to sue Apotex for infringement, the Court held that the ‘usual order as to costs’ in respect of the infringement claim should not be made. Justice Yates held that “it would be incongruous to award BMS all its costs of the proceeding” when it had no entitlement to commence proceedings for infringement.2 As a result, BMS was not able to recover costs against Apotex for the infringement claim.
BMS has appealed Justice Yate’s finding on the exclusive licence and on the award of costs.
What does this mean for your agreements?
Patent licensors need to be aware that granting a licensee sufficient rights to be an ‘exclusive licensee’ under the Patents Act may mean that the licensee has the right to commence proceedings for patent infringement in its own right.
From a licensee perspective, it is important to carefully review the rights granted under a licence to ensure that they include a grant of the right to ‘exploit’, expressly covering all activities that fall into the definition of ‘exploit’ within the Patents Act, in relation to all fields of use.
Just because a licensee has exclusive rights to do certain things with a patent does not necessarily make that licensee an exclusive licensee for the purposes of the Patents Act.
A licensee should also carefully review the agreement and draw a distinction between a sole licence where some rights (particularly rights within the Patent Act definition of ‘exploit’) are reserved to the patentee, and an exclusive licence where the licensee is granted rights (including rights within the Patent Act definition of ‘exploit’) to the exclusion of all others, including the patentee.
An exclusive licence for some patent rights is still a valuable thing and if that is the negotiated position that’s fine. What is important is that a licensee always considers whether it wants to be able to enforce the patent against third parties in its own name. A negotiated position may be that a non-exclusive licensee has the right to be consulted by the patentee in connection with infringement proceedings commenced by the patentee.
Remember that patents are different to other forms of IP. For example, an exclusive licensee in relation to specific copyright rights (rather than all) can enforce those rights against third parties in their own name.
1.  FCA 1114
2. In the subsequent decision of Bristol-Myers Squibb Company v Apotex Pty Ltd (No 6)  FCA 1235 at 
The article was first published on the Herbert Smith Freehills Website.