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How exclusive does a patent licence need to be in order to qualify as an ‘exclusive licence’ under the Patents Act?

In the enforcement of patent rights, disputes over whether a patent is infringed may lead to the institution of infringement proceedings before the court.  The Patents Act 1990 provides that court proceedings for patent infringement may be started by the patentee or an exclusive licensee.

In a few recent decisions, the standing of parties starting infringement proceedings and claiming to be an exclusive licensee has been successfully challenged. The line of enquiry exposes just how exclusive the terms of a licence needs to be in order to qualify the licensee as an ‘exclusive licensee’ as defined by the Patents Act.

In order to understand the line of enquiry it is important to understand just what a patent right is.

Patent Right

The patent right confers upon the patentee exclusive rights to exploit an invention and authorise others to exploit the invention.

The term ‘exploit’ has a specific definition which lists particular activities:

 Licencing

When commercialising an invention a patentee may find it necessary or beneficial to authorise others to undertake activities with respect to the invention subject to specific terms set out in a licence agreement.

A patentee may agree to ‘exclusive’ terms, whereby the licensee is conferred the rights to undertake defined activities to the exclusion of everyone else, including the patentee.

It is quite possible for a patentee to undertake a number of licence agreements with different parties, each agreement setting out different ‘exclusive’ terms, provided these ‘exclusive’ terms do not overlap.

Exclusive Licensee

According to the patents act 1990, an exclusive licensee is defined as:

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 use of the word ‘exploit’ is important.

Can a licensee that has been granted exclusive rights to undertake some (but not all) activities provided under the definition of ‘exploit’ meet the above definition of an ‘exclusive licensee’?

Bristol-Myers Squibb Company v Apotex Pty Ltd (No 5) [2015] FCAFC 2

In the above case, the Full Federal Court considered whether Bristol-Myers Squibb Company (BMS) had standing to bring infringement proceedings against Apotex Pty Ltd.

In 2001, BMS was granted a licence by the patentee (Otsuka Pharmaceutical Co Ltd) in relation to their patented drug aripiprazole.  The licence granted exclusive terms to BMS to advertise, market, promote, sell and distribute aripiprazole in a number of countries, including Australia.  However, the licence agreement did reserve the right to manufacture the drug to Otsuka.

The Court found that the right to “exploit” a patent is a “single indivisible right”. Consequently, the word “exploit” is not intended to create separate rights in relation to each of the activities within its definition. For the purposes of the Patents Act, an exclusive licence cannot be one that reserves to the patent holder, or any other person, any residual right with respect to the exploitation of a patent.

Consequently, BMS did not meet the definition of an exclusive licensee and therefore did not have standing to sue Apotex for patent infringement.

Summary

A patent licensee, when entering a licence agreement, needs to be aware that the inclusion of exclusive terms and clauses in the agreement does not necessarily provide the licensee standing to initiate infringement proceedings before the court.  Consequently, where the licensee does not have such standing, care should be taken to ensure that there are terms in the agreement setting out how the patentee should be enforcing the patent rights in order to protect the licensee’s interests.