You may have an exclusive licence but are you really an “exclusive licensee”?

Do you have rights to exploit patented technology as an exclusive licensee? It is common for companies in the life sciences industry to give and take licences to patented technology on an exclusive basis, allowing the exclusive licensee to exploit the technology to the exclusion of all others, including the licensor.

The advantages of this model include providing the licensor a revenue stream for its technology when it is not in a position to exploit the technology for itself, and allowing the exclusive licensee access to existing technology that it can use in its business without requiring additional R&D investment. An important part of this exclusive arrangement is that it puts the exclusive licensee, in many respects, in the position of the technology owner: no other person, including the technology owner, is permitted to exploit the technology and, under the Patents Act 1990 (Cth) (the Act)the exclusive licensee is permitted to bring an action against an patent infringer in its own name, giving it the important right to protect its investment in the licensed technology and its business.

However, the recent full Federal Court decision of Bristol-Myers Squibb Company v Apotex Pty Ltd [2015] FCAFC 2, provides some additional insight into what is an exclusive licensee under Australian law which will have repercussions for the way in which rights to patented technology are drafted in licensing agreements.

Under the Act, an “exclusive licensee” 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.

In its decision, the full Federal Court found that Bristol-Myers Squibb (BMS) was not an exclusive licensee of an Australian patent relating to the compound aripiprazole and processes for its preparation, and therefore had no standing to sue Apotex for infringement of this patent. This is because the licence agreement between BMS and Otsuka granted BMS an “exclusive licence” to advertise, market, promote, sell and distribute the compound aripiprazole but, crucially, reserved for the patentee the exclusive worldwide right to manufacture aripiprazole.

The full court of the Federal Court agreed with the primary judge who held in the first instance that there can be only one “exclusive licensee”, and therefore as the licence reserved the right to manufacture for the patentee, BMS was not an “exclusive licensee”. The court  did not accept the argument of BMS that it could be an exclusive licensee with respect to some rights and not in relation to others, holding that the right to exploit is a single indivisible right.

While the type of licence entered into by BMS is not unusual and likely met the commercial needs of the parties at the time, the takeaway point of this important case is as follows: if you wish to have the right to bring an action in Australia against a patent infringer to protect your investment in the patented technology, then you must be an “exclusive licensee” under Australian law. That is, your right to exploit the patent must be indivisible and exclude any rights to any other person, including the patentee.

Something to think about in your next licence!

Elizabeth Campbell

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