Patent Litigation

In November 2022, the Federal Court of Australia revoked its COVID-19 “Special Measures” practice notes, bringing an end to various necessities and conveniences arising from the pandemic, such as the acceptance of unsworn/unaffirmed affidavits. In-person hearings have returned as the norm but remote access to hearings remains common, enabling litigation teams, clients and interested observers to view proceedings from the office and around the globe.

A number of significant patent decisions were handed down in 2022. Some provided welcome guidance, such as the first decision on the experimental purposes infringement exemption and much-needed certainty by the Full Federal Court on patent term extensions. On the other hand, the High Court’s split decision on computer-implemented inventions will only fuel debate in years to come.

While the Patent Office has been largely operating under the heightened standards of the “Raising the Bar” regime for years now, only a few of these patents have made it to the courts to date. It remains to be seen how the law will evolve in light of recent developments overseas.

First judicial guidance on the “experimental purposes” infringement exemption

Section 119C of the Patents Act provides a defence against infringement for acts done for experimental purposes relating to the subject matter of the invention. Jusand Nominees Pty Ltd v Rattlejack Innovations Pty Ltd [2022] FCA 540 affords the first substantive judicial consideration of the provision since its introduction in 2012.

One of the respondents asserted that the supply of its device for use in underground mining was covered by Section 119C. Justice Rofe accepted that “experimental purposes” ought not be confined to laboratory work. Her Honour considered the expression to connote at least some application of scientific method to the discovery of new information, the testing of a hypothesis, the existence of a protocol or methodology documentation of some kind setting out the purpose of the experiment and the variables to be measured or observed, and the recording and reporting of results or observations.

Justice Rofe found that early field tests of the device fell within Section 119C. These tests involved a limited number of prototypes and were conducted for the purposes of determining whether the prototypes worked and, when they failed, for testing redesigned prototypes. Reports were also prepared on the failed tests, which included speculation as to the cause of the failures and what changes were required.

However, her Honour considered that the supply of 200 production model devices which were put to use for 12 months of purported testing in mining operations did not fall within the exemption. Her Honour held that the supply was nothing more than use in the ordinary course of mine operations. Importantly:

• the supplier had no input into any trial design for the devices, including what parameters to measure, where and how the trial was to be conducted, and what constituted success;
• testing was only conducted at some sites at which the devices were deployed;
• there was no scientific method associated with the trial or documentation recording it;
• the Partnering Agreement between the supplier and the recipient was silent as to any experimental use or trial; and
• the devices were suppled at a commercial price (ie, not discounted) that included a sales margin.

These findings are in line with the Explanatory Memorandum to the “Raising the Bar” Bill. While the Bill recognised the practical reality that research is frequently undertaken for mixed purposes, and so it is not fatal if there is some commercial purpose to the experiments, the commercial purpose cannot be the main purpose. Section 119C may, therefore, encompass research with a view to ultimately commercialising the end-products of the experimentation, including research partially funded by a commercial partner, but the relevant acts must be undertaken for the predominant purpose of gaining new knowledge, or testing a principle or supposition about the invention.

Jusand appealed the decision to the Full Court, which was heard in November 2022, with judgment reserved. The views of the Full Court will be heard in 2023. 

Indemnity costs

The usual order as to costs “as between party and party” only compensates the successful party for those costs “that have been fairly and reasonably incurred” in Australian litigation. Indemnity costs, on the other hand, are intended to compensate a successful party fully for costs incurred, and thus represent a significant increase in compensation.

Indemnity costs are not punitive. The circumstances which have warranted indemnity costs include where the moving party should have known it had no chance of success, or persisted in what should have been seen to be a hopeless case, or unreasonably rejected an offer or compromise. In assessing unreasonableness, the court will, without the benefit of hindsight, have regard to the extent of the compromise offered and the losing party’s prospects of success, assessed at the time the offer was rejected.

In Vector Corrosion Technologies Limited v E-Chem Technologies Ltd [2022] FCA 519, the respondents (represented by Maddocks) sought indemnity costs. Justice Jagot considered Vector’s case to be weak but nonetheless arguable, and thus declined to award indemnity costs for the whole of the infringement/revocation proceeding, despite the fact that only four weeks before trial Vector consented to orders that the infringement proceeding be dismissed, the asserted claims of the patents be revoked and that it pay the respondents’ costs. However, her Honour concluded that indemnity costs should be awarded because of Vector’s unreasonable rejection of a “Calderbank” offer and an offer of compromise made by the respondents on 24 June 2019.

Justice Jagot considered a number of factors to indicate that Vector had acted unreasonably in not accepting the offers, including:

• the offer letter clearly identified the respondents’ position on invalidity, including on Vector’s amendments to the claims;
• Vector rejected the offers four days after they were made on the basis that it could not assess the merits of the respondents’ invalidity arguments and that the patent was entitled to the presumption of validity;
• Mr Whitmore, the President of Vector, was a person skilled in the art and “a sophisticated businessperson with a clear understanding of how patent rights can operate to Vector’s advantage”;
• it could be inferred that Mr Whitmore must always have known that the asserted claims were of seriously questionable validity;
• the doubtful validity of the claims asserted by Vector was reinforced by the fact that Vector’s attempt to obtain equivalent amendments in Vector’s European patent had previously been rejected;
• Vector must be taken to have known from all the circumstances that the attempt to amend the claims to capture the respondents’ process involved, at best, a significant stretch of the terms of the specification; and
• the offers involved a real compromise by the respondents of value to Vector, in that Vector would pay no costs to the respondents and its amended claims would remain unchallenged.

Parties to litigation considering to make an offer to resolve a dispute should ensure that the offer represents a genuine compromise so that, in circumstances where the offer is unreasonably rejected, the court is more likely to award indemnity costs. In this case, a “walk away” offer was held to pass the test. 

Life Sciences

Pharmaceutical patent settlements – seeking authorisation from the regulator

In 2022, the Australian Competition and Consumer Commission (ACCC) considered, for the first time, an application for authorisation of a patent settlement and licensing agreement.

Part IV of the Competition and Consumer Act 2010 (Cth) (CCA) contains prohibitions against substantially lessening competition and engaging in cartel conduct. Breach of these provisions can attract both civil and criminal penalties. Section 51(3) of the CCA previously provided a broad exemption to these prohibitions for certain conduct related to intellectual property rights. The repeal of Section 51(3) in 2019 thus opened parties to patent settlement and licensing arrangements to the risk of contravening these prohibitions.

One way this risk may be managed is to apply to the ACCC for authorisation. This is a public process, with the application published on the ACCC’s website and the public invited to comment on the potential competitive effects of, and the public benefits and detriments that may result from, the conduct that is proposed to be authorised. The ACCC considers both the likely future with the proposed conduct (the factual) and the likely future in which that conduct does not occur (the counterfactual).

In November 2020, Juno Pharmaceuticals Pty Ltd and Natco Pharma Ltd commenced proceedings against Celgene Corporation, seeking to revoke certain of Celgene’s patents relating to lenalidomide (REVLIMID) and pomalidomide (POMALYST). Celgene’s compound patent for lenalidomide was due to expire on 23 July 2022, and various method of treatment patents were due to expire in 2023 and 2027. Celgene cross-claimed for infringement.

The parties subsequently entered into a settlement agreement to resolve the litigation, whereby Juno and Natco were granted a non-exclusive licence to launch their generic lenalidomide and pomalidomide products before the latest expiry date of Celgene’s patents. In December 2021, the parties applied for authorisation of aspects of the agreement.

In a draft determination issued in March 2022, the ACCC denied the application. The ACCC commented that it had received submissions on a confidential basis from the parties on the potential counterfactual scenarios but no evidence to substantiate those submissions. The ACCC stated that this approach had compromised the ACCC’s ability to test the parties’ submissions, which in turn influenced the ACCC’s conclusions in assessing the application under the public benefit test. The parties were given time to respond to the draft determination.

The parties could perhaps be forgiven for limiting the amount of confidential information provided to the ACCC in their application for authorisation. There is a strong argument that a non-exclusive licence agreement to allow a competitor to market a generic brand before patent expiry necessarily increases competition, and necessarily benefits the public. The first generic listing triggers a 25% statutory reduction to the reimbursed price for all brands of a given medicine, and further reductions begin to apply under the price disclosure regime. Once the first generic brand has been listed, the prospects of the originator restraining additional generic brands also reduce, given the change to the status quo.

In July 2022, the parties withdrew the application before the ACCC’s final determination was due to be made. The litigation was subsequently discontinued in September 2022. As at December 2022, REVLIMID remained the only lenalidomide brand listed on the PBS, but two additional pomalidomide brands were recently listed, including Juno’s product. It can be inferred that the parties reached alternative settlement terms.

It remains to be seen whether the ACCC will take a heightened interest in patent settlement agreements following this experience, as has been the case in other jurisdictions and as recommended by the Productivity Commission in 2016. Given that settlement provides generic companies with a means to enter the market earlier than otherwise and at reduced risk, and the inherent increase in competition by having a second player in the market, parties should not lightly be deterred from reaching appropriate settlement arrangements.

Patent term extensions update – first in best dressed

The patent term extension (PTE) regime in Australia recognises the length of time that is lost to patentees in the process of obtaining marketing approval for a new drug, during which time the drug cannot be commercialised. PTEs continue to be a contentious issue in Australian litigation.

Two recent decisions of the Full Court of the Federal Court of Australia (comprising the same panel of judges) have made abundantly clear that a PTE application may only be based on the first goods included on the ARTG which are disclosed and claimed in the patent. This is the case regardless of:

• whether the goods are sponsored by the patentee or another person;
• whether the patent discloses and claims multiple pharmaceutical substances and different products containing, or consisting of, the substances are included on the ARTG at different times; and
• how the products are included on the ARTG (registered, listed, listed for export-only, etc).

In Ono Pharmaceuticals Co Ltd v Commissioner of Patents (Ono), the claims of Ono’s patent encompassed not only the anti-PD-1 antibody in its product, OPDIVO, but also that in a competitor’s product, KEYTRUDA. The Commissioner refused Ono’s application, stating that it should not have been based on OPDIVO but rather KEYTRUDA, which was the first to be included in the ARTG. On appeal to a single judge ([2021] FCA 643), Justice Beach overturned the Commissioner’s decision, finding that it would be “manifestly unreasonable” for a patentee to be denied the compensation offered by the PTE regime due to another party obtaining earlier marketing approval for a different product.

The Full Court ([2022] FCAFC 39) overturned Justice Beach’s decision and refused the PTE. Their Honours accepted the compensatory objective of the PTE regime but this did not mean that the regime “should be construed to achieve what might be described as a commercial outcome for the patentee”. Indeed, if so, a patentee could license a third party to exploit the patent and obtain ARTG registration in the third party’s name, and only later seek regulatory approval in its own name so as to obtain the maximum term extension.

In Merck Sharp & Dohme Corp v Sandoz Pty Ltd (Merck v Sandoz), the claims of Merck’s patent encompassed two of its products on the ARTG, one comprising sitagliptin and the other comprising both sitagliptin and metformin. Merck relied on the latter to obtain the term extension. At first instance ([2021] FCA 947), Justice Jagot considered that a patentee ought not be allowed to extend its monopoly simply because a second pharmaceutical substance is later included on the ARTG. As Merck’s ARTG listing of sitagliptin alone occurred first and less than five years after the date of the patent, there could be no extension of term.

The Full Court ([2022] FCAFC 40) confirmed the primary judge’s finding, noting that if the position were otherwise, a patentee could obtain an extended monopoly for one drug based not on a delay in its regulatory approval but a delay in relation to a different drug.

Looking forward

Following Ono, patentees will need to keep an eye out for the potential for earlier inclusion of competitor products on the ARTG and consider their filing and prosecution strategies accordingly. While this is unlikely to be an issue for small molecules, broad claims regarding biologics may capture a competitor’s structurally different product.

Following Merck v Sandoz, patentees will need to consider their current portfolios and future patenting strategy for patents encompassing multiple pharmaceutical substances. Patentees will need to consider limiting the claims of individual divisional applications to each of the substances on which a PTE may be based.

The decisions provide welcome clarity in this highly contentious space and curtail increasingly common PTE strategies. They have confirmed, and are likely to continue to confirm, the invalidity of several PTEs granted based on second generation or combination products and thus bring forward entry opportunities in Australia for generics and biosimilar developers.

TMT

AI inventors – not in Australia

Dr Thaler’s multi-jurisdictional campaign has posed the question: can an artificial intelligence (AI) system be an “inventor”? This year, the Australian courts said “no”.

The dispute concerned a Device for the Autonomous Bootstrapping of Unified Sentience (DABUS), which was named as the inventor in a patent application filed by Dr Thaler.

Section 15(1) of the Patents Act states that a patent for an invention may only be granted to a person who:

• is the inventor; or
• would, on the grant of a patent for the invention, be entitled to have the patent assigned to the person; or
• derives title to the invention from the inventor or a person mentioned in the second bullet point above; or
• is the legal representative of a deceased person mentioned in one of the three bullet points above.

As was reported in the 2022 Australian Trends & Developments chapter in this guide, the Deputy Commissioner of Patents issued a direction to Dr Thaler to identify the inventor, stating that an inventor must be a natural person. The rationale was that Section 15(1) of the Patents Act is “not capable of sensible operation in the situation where an inventor would be an artificial intelligence machine as it is not possible to identify a person who could be granted a patent”. As the alleged deficiency was not capable of being corrected, the patent application lapsed. Dr Thaler sought judicial review of the decision.

Justice Beach set aside the Commissioner’s decision and remitted the matter for determination, including on the basis that: (i) nothing in the Patents Act precludes the possibility of a patent grant for an invention with no human inventor; and (ii) the Commissioner interpreted the statute incorrectly by unnecessarily reading limitations and qualifications into the definition of “inventor”.

On appeal, the Full Court of the Federal Court of Australia considered the history of, and policy behind, the Patents Act, citing a number of provisions which were predicated on the inventor being a natural person. The Full Court said that there was no indication of legislative intent for the role of the inventor to change in the context of the current provisions.

The Full Court held that identification of the inventor within Section 15(1) is of “central relevance” to the operation of the Patents Act and is closely related to questions of validity. For example, allegations that a patent was obtained by fraud, false suggestion or misrepresentation call into question whether the inventor has made representations as to the nature of the invention.

The Full Court considered the construction of Section 15 as referring to a natural person to be consistent with the established rules of statutory construction and developments in case law. The appeal was allowed.

Dr Thaler sought special leave to appeal to the High Court of Australia, which was dismissed on the basis that the case was not an appropriate vehicle to consider the questions of principle raised by the applicant.

Although a future challenge remains possible, the outcome of these proceedings brings Australia into line, for now, with other jurisdictions (including Europe, the UK and the USA), where the patent offices and courts have consistently determined that their respective legislation does not recognise an AI machine as an inventor; rather, an inventor must be a natural person.

Computer-implemented inventions

As was reported in the 2022 Australian Trends & Developments chapter in this guide, the Full Court of the Federal Court of Australia in Commissioner of Patents v Aristocrat Technologies Australia [2021] FCAFC 202 clarified that electronic gaming machines (EGMs) and the like are subject to the same patent eligibility criteria as other computer-implemented inventions.

Subsequently, Aristocrat sought and obtained special leave to appeal to the High Court of Australia. While the full bench normally consists of seven members, one judge became ill before the hearing, leading to the possibility of a 3:3 split decision. In these circumstances, the outcome of the decision below stands (in the present case, the Full Court’s finding that Aristocrat’s patents lack patentable subject matter).

That possibility became a reality ([2022] HCA 29), with Kiefel CJ, Gageler and Keane JJ (Kiefel et al) delivering one judgment and Gordon, Edelman and Steward JJ (Gordon et al) delivering a separate judgment.

At the heart of the issue was that the invention, as claimed, was not simply to a novel feature game but to an EGM comprising physical parts (including a display, a game controller comprising a processor, and a game play mechanism comprising a plurality of buttons) and the operation of which involves the novel feature game.

Kiefel et al would have dismissed the appeal, finding that the claimed invention, as a matter of substance, was to a new feature game that was itself inherently unpatentable. Their Honours considered that the invention did not produce some adaptation or alteration of, or addition to, technology otherwise well-known in the common general knowledge. Thus, the alleged invention rose no higher than the implementation of a new idea using old technology, which “is simply not patentable subject matter”. Kiefel et al did, however, remark that a claimed invention for patentable subject matter does not become unpatentable because it is operated by generic computer technology.

Gordon et al would have allowed the appeal. Their Honours considered that the question of patentable subject matter “should not be deconstructed to require, separately from the general principles of patentability, consideration of whether the subject matter is ‘computer implemented’”. Their Honours accepted that implementation of a scheme or idea on a computer must do more than merely manipulate the abstract idea; rather, it must create an artificial state of affairs and a useful result. In finding that the claimed invention did so, Gordon et al had regard to the Commissioner’s acceptance that if the claim had involved a mechanical gaming machine (using cogs, reels and motors) then it would have been patentable subject matter, and considered that a different conclusion should not be reached simply because these mechanical parts are replaced by complex software and hardware that generate digital images.

Aside from the rejection of the Full Court’s proposed two-step approach by both Kiefel et al and Gordon et al, the only other certainty from the High Court’s judgment is that the split decision will give rise to further debate in the years to come.