Authors: Andrew Butler and David Chin, Principals
How does BMS v Apotex affect your patent licence?
Following the recent Full Federal Court decision in BMS v Apotex, David Chin and Andrew Butler note that it makes sound business sense to review your organisation’s exclusive licences to confirm that they accord with your IP and corporate strategies. Any reservation of rights may prevent your organisation from being able to sue for patent infringement.
If you’re involved in negotiating technology licences, cast your mind back to when you celebrated the signing of an exclusive technology deal. You’ll also recall the times when you and your organisation’s management considered the merits of acquiring an exclusive patent licence. Following the recent Full Federal Court decision in Bristol-Myers Squibb Company v Apotex Pty Ltd [2015] FCAFC 2, it would be advisable to dust off those licence agreements and review both the drafting of the exclusive licence and the reasons for pursuing an exclusive licence.
If your organisation only wishes to prohibit your licensor from granting a licence to another party, BMS v Apotex is unlikely to concern you. The contractual obligations imposed on your licensor should have your organisation covered. However, if it is important for your organisation to have the ability to sue for patent infringement, you may want to pay closer attention to how the exclusive licence is drafted.
BMS unable to sue for patent infringement
In BMS v Apotex, Bristol-Myers Squibb Company (BMS) acquired a licence to Otsuka Pharmaceutical Co Ltd’s (Otsuka) patent, which relates to an improved form of an antipsychotic drug, aripiprazole. As drafted, Otsuka granted BMS an exclusive licence to advertise, market, promote, sell and distribute aripiprazole. However, Otsuka reserved the right to manufacture, or have manufactured, aripiprazole in its various forms.
BMS tried to sue Apotex Pty Ltd (Apotex) when Apotex offered to sell pharmaceutical products containing aripiprazole in Australia.
Although the Patents Act 1990 (Cth) allows an exclusive licensee of a patent to sue for infringement, the Court considered that BMS was not an exclusive licensee under the Patents Act in light of Otsuka’s reserved rights. For a licensee to be entitled to sue, the licensee needs to be granted the right to exploit (as defined in the Act) to the exclusion of the patentee. So a licensee could not sue if the licensor (or any other party) retains a residual right to exploit the patented invention.
How does BMS v Apotex affect your patent licence?
As you may already expect, the impact that BMS v Apotex has on your organisation’s patent licence will depend on any limitations contained in the licence. Obvious examples are express limitations on a technical field, application, purpose or geographical area within Australia. However, it may also be worthwhile having an IP expert review the licence, as there may be limitations despite them not being explicit; the word ‘exclusive’ is not, of itself, definitive.
How does BMS v Apotex affect your IP and corporate strategies?
If your organisation is not an exclusive licensee under the Patents Act, it is still relevant to consider whether the ability to take action for patent infringement is integral to your IP and corporate strategies, including whether any current or prospective sublicensees would wish to sue or have your organisation sue.
If your organisation’s mandate is to stop competitors from engaging in or continuing infringing activity, the patent licence in its current form may still contain a clause that enables you to compel the licensor to seek an injunction for infringement or, if the licensor is also a licensee, compel the patentee to sue. Of course, this assumes that the licensor or patentee is willing and capable of doing so.
However, if it is important for your organisation to recover damages for patent infringement, a licensor or patentee doing your bidding may not be sufficient. A patentee may only claim an infringer’s profit (which could be negligible, if at all) or its own loss (such as the fraction of revenue from your organisation).
Even if your organisation is not interested in suing for infringement, was the ability to sue factored into the valuation and price paid for the licence compared to an assignment of the patent?
Securing an entitlement to sue
All is not lost if the terms of an exclusive licence don’t meet your expectations. However, you may need to contact your licensor to negotiate a variation or assignment, and an IP lawyer to do some redrafting. If there are other exclusive licensees in different fields, for example, you may also need to roll up your sleeves to secure your organisation as the sole exclusive licensee (and have other licensees as your sublicensees). In light of BMS v Apotex, there can be only one exclusive licensee and, therefore, only one licensee entitled to sue.
The strategic consideration should include consultation about whether multiple patents covering discrete fields might be justified.
Please feel free to contact us if you have any queries.