In the recent Australian Patent Office decision of H Lundbeck A/S v Sandoz Pty Ltd  APO 18 (11 April 2019), Sandoz was successful in its application for a compulsory licence to protect its exploitation of Lundbeck's Australian Patent No. 623144 ("the Escitalopram Patent").
Background to the Case
Lundbeck's blockbuster antidepressant, escitalopram, marketed as Lexapro®, has been the subject of extensive patent litigation in Australia over the past decade. The Escitalopram Patent claims the (+)-enantiomer of citalopram per se and its methods of preparation. Citalopram is a racemic mixture of the (+) and (-)-enantiomers, marketed by Lundbeck as Cipramil®, and is the subject of an earlier Lundbeck patent.
In 2003, Lundbeck successfully applied for an extension of patent term of the Escitalopram Patent based on the inclusion of Lexapro® in the Australia Register of Therapeutic Goods (ARTG). However, it was subsequently found in a Full Federal Court decision ( Alphapharm Pty Ltd v H Lundbeck A/S  FCA 559, 76 IPR 618) that the extension was incorrectly based on the inclusion of Lexapro® in the Australian Register of Therapeutic Goods (ARTG) and should have in fact been based on the earlier inclusion of Cipramil® in the ARTG.
As a result, Lundbeck filed for a 10-year extension of time to apply for an extension of term correctly based on the inclusion of Cipramil® in the ARTG. The extension of time was advertised on 23 July 2009 and the extension of term was granted on 25 June 2014, extending the protection of the Escitalopram Patent to 9 December 2012. However, given that the extension of term was not granted until after the Escitalopram Patent ceased on 13 June 2009, during this period of uncertainty a number of generic manufacturers, including Sandoz, launched their generic equivalents.
Late last year, we reported on the Federal Court decision in H Lundbeck A/S & Anor v Sandoz Pty Ltd, in which Sandoz was found to infringe on the Escitalopram Patent due to the retroactive nature of the extension of term. The current proceedings arose from Sandoz's application for a licence to exploit the Escitalopram Patent under regulation 22.21.
Should a Licence Be Granted?
The main consideration of the APO decision was whether or not to grant Sandoz a licence that would protect their exploitation of the Escitalopram Patent, in view of the patent ceasing before the extension of term could be granted.
Regulation 22.21 of the Patents Regulations 1991 provides protection or compensation for certain persons who "exploited, or took definite steps by contract or otherwise to avail themselves of or exploit, inventions" within a period of time extended under section 223(9) of the Patents Act 1990.
Section 223(9) of the Patents Act 1990 empowers the Commissioner to protect a third party who exploited or took definite steps to exploit the invention "because of" a failure to do a relevant act. In the present case, the relevant act was Lundbeck's failure to apply for an extension of term in time and the subsequent ceasing of the patent.
When deciding if a licence should be granted, the Deputy Commissioner considered the following matters arising from section 223(9):
a) Did Sandoz exploit, or take definite steps to exploit, the invention before 23 July 2009?
b) Was the exploitation "because of" the failure of Lundbeck to file the application for extension of term of the patent in time, or the ceasing of the patent?
The Deputy Commissioner determined that Sandoz's importation and sale of its generic equivalent, Esitalo®, before the extension of time was advertised, was exploitation of the invention. Furthermore, the Deputy Commissioner found that Sandoz's belief that the patent term was ceasing would have been a main contributing factor when scheduling the launch of their generic equivalent and as such their exploitation was "because of" the Escitalopram Patent ceasing.
The Deputy Commissioner also considered the following circumstances arising from regulation 22.21:
c) Did Sandoz exploit the invention during the period of time extended?
d) If all the criteria from section 223(9) are satisfied, is there discretion whether to grant a licence?
e) On what terms should a licence be granted?
The Deputy Commissioner found that Sandoz exploited the invention by importation, but not sale, during the period of time extended. As such, the criteria of section 223(9) were met and pursuant to regulation 22.21(5) a licence must be granted by the Commissioner "if reasonably satisfied that the application [for a licence] should be granted". The Deputy Commissioner agreed with a previous decision (HRC Project Design Pty Ltd v Orford Pty Ltd  APO 12, 38 IPR 121) that there was a broad discretion on whether to grant a licence.
Further the Deputy Commissioner considered the following matters relevant to the discretion of whether to grant a licence:
- The nature of the act Lundbeck failed to do and why
- How Sandoz came to exploit the invention
- The interests of both Lundbeck and Sandoz
Lundbeck failed to file an extension of term based on Cipramil® within the time set out in the Patents Act 1990. The Administrative Appeals Tribunal (AAT) found that Lundbeck delayed the application for strategic commercial reasons and that Lundbeck did not apprise Sandoz of their intentions to seek the extension. In a previous decision (H Lundbeck A/S v Sandoz Pty Ltd  FCA 1797), Justice Jagot, did not find such behaviour "unreasonable ... in the circumstances".
Sandoz was found to have exploited the Escitalopram Patent by the launch of its Esitalo® product and while importation of the product was covered by a licence, the sale of the product was not. The Deputy Commissioner was of the opinion that, despite the importation not being considered exploitation, it would be artificial to separate the two aspects. Furthermore, any uncertainty as to whether Sandoz required protection was mitigated by the successful infringement action brought by Lundbeck against Sandoz.
A licence would be of considerable commercial value to Sandoz in providing relief from Lundbeck's infringement action. Therefore, the Deputy Commissioner found that there was no reason that a licence should not be granted and was satisfied that the application for a licence should be granted under the following terms:
- The licence would not entail any royalties
- The licence would run from the date that the normal term of the patent ended and run until the date that the patent expired at its extended term
- The licence would be personal to Sandoz, meaning it could not be assigned or transferred
While Australia's patent system is generous in the allowance of lengthy extensions of time to rectify errors that may lead to a loss of patent rights, patentees need to be aware that a third party can apply for protection against exploitation by grant of a compulsory licence by the Commissioner.
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