Licensing and Extensions of Time

A feature of Australia’s IP system is generous extension of time provisions to address errors or omissions leading to loss of rights.  However, where such an extension of time is allowed, a party which has sought to exploit the rights in the good faith belief that they have expired, may be protected by grant of a licence by IP Australia.

The Escitalopram Case

The most important case so far arose in the case of the escitalopram antidepressant which has been the subject of extensive patent litigation in Australia. Pertinently, Lundbeck had filed an out of time application for extension of term of a patent based on the inclusion of Cipramil in the Australian Register of Therapeutic Goods.  Cipramil is a mixture of enantiomers from which the (+)-enantiomer (escitalopram) can be separated, in purified form, as the Lexapro product. This followed decisions that an earlier application for an extension of term had been incorrectly filed based on the Lexapro product and so an application for an extension of time based on this error, and amounting to just over 10 years (a very long extension), was necessary to support the extension of term application.  Such incorrect filing formed the ‘error or omission’ that justified late filing of the out of time application for an extension of term based on Cipramil on 12 June 2009.

The normal term of the Cipramil patent expired the very next day: 13 June 2009.  Shortly after, a number of generic pharmaceutical manufacturers (‘generics’) launched generic products containing escitalopram.  Sandoz’ product was called Esitalo, imported into Australia in late May 2009 followed by the launch of the Esitalo on 15 June 2009 and sale commencing on 16 June 2009.

Sandoz opposed the extension of time application and sought a licence to protect its exploitation of escitalopram including the actions of importation, launch and sale.

Consideration of the Sandoz Licence Application

As a starting point, Sandoz needed to show it had exploited (or had taken definite steps to exploit) escitalopram before public advertisement of Lundbeck’s extension of time application.  Whether grant of a licence was appropriate depended on resolving the following questions:

  • Was there relevant exploitation of the invention?
  • Did the applicant (for a licence) have knowledge of the status of the patent at all material times?
  • Did the applicant exploit the invention because of the error or omission?
  • Should a licence be granted? and, if so
  • On what terms?

Though Sandoz had not admitted exploitation, which would also amount to admitting infringement, the Deputy Commissioner found the question of exploitation straightforward to determine given Sandoz’ importation and sale of Esitalo products prior to the advertisement date.

The Deputy Commissioner also found that Sandoz knew of the status of the Lundbeck escitalopram patent at all material times.  A more complex question was whether Sandoz’ exploitation had occurred because of Lundbeck’s failure to file its application for extension of term of the escitalopram patent in time.  He said:

“The absence of an extension of term based on Cipramil and the potential that the extension based on Lexapro was invalid would have given rise to a reasonable belief that it was likely that the (Cipramil: author’s insertion) patent would cease in June 2009, and this belief would have been part of Sandoz’ planning to launch. It defies credibility to believe that the failure to file an application for an extension of term based on Cipramil was an irrelevant event and not a cause of Sandoz’ actions.”

This finding lay at the core of the Deputy Commissioner’s decision that the statutory requirements for grant of a licence to Sandoz had been met.  The final grant depended on a broad discretionary power apparent from the licensing provision itself and the limited precedents applying to their interpretation.  The Deputy Commissioner found it relevant to consider:

  • The nature of the act that Lundbeck did not do in time;
  • How Sandoz came to exploit the invention;
  • The interests of both Lundbeck and Sandoz in relation to the licence (which were obviously commercial); and
  • The public interest

Lundbeck had not filed for an extension of term based on Cipramil in time and the Deputy Commissioner found that filing had been delayed as late as possible.  Lundbeck had not informed Sandoz of its intentions and “Lundbeck’s behaviour was clearly designed to maintain uncertainty for Sandoz and the public for as long as possible” though such actions were “not unreasonable in the circumstances”.

The key question was whether Sandoz needed protection in the form of a licence.  As importation of the Esitalo products was covered by a licence (settlement agreement) agreed on commercial terms, there was no need for protection for that act.  However, it would be artificial to divorce the importation from the sale of the products and the sale of the products was not covered by the settlement agreement.  If there were any doubt that there is a role for protection, this was demonstrated by Lundbeck’s infringement proceedings against Sandoz.

Certainly, a licence would be an extremely valuable right when compared to damages running in to the millions of dollars.  However, there was no logical basis for finding that the benefit of a licence would be excessive.  Exercising discretion to grant a licence was reasonable.

As to the terms of the licence, the special nature of the licence needed to be considered.  The licence was not an agreement freely made between Lundbeck and Sandoz, it was one granted by the Commissioner of Patents.

The terms of the licence were as follows:

  • The parties made no submission in relation to royalties and no royalty was fixed (indeed, such a licence would be expected to be royalty free).
  • The licence would run from the date that the citalopram patent ended to the date of expiry of its extended term.
  • The licence would be personal to Sandoz in the sense that it belonged to Sandoz but could not be assigned, transferred or sub-licenced.
Take Aways

Though the decision has been appealed, the case shows that compulsory licences can be granted to protect the interests of a party which has exploited, or taken definite steps to exploit a patent during the time of lapse.  Though the circumstances in which a licence will be granted are confined, if granted there is a loss to the patentee.  Clearly, in a pharmaceutical patent case, this loss will be very significant.

However, extensions of time to cure errors or omissions leading to loss of rights are not uncommon and compulsory licences are always a possibility, particularly for large entities with patent portfolios in fast moving technology.