FEDERAL COURT OF AUSTRALIA

Orion Corporation v Actavis Pty Ltd (No 3)

[2015] FCA 1373

THE COURT ORDERS THAT:

1.    It be declared that:

(a)    on and after 7 March 2014 the second applicant was; and

(b)    on and after 11 March 2014 the third applicant was

a proper and necessary party to the proceedings and had title to sue for the relief claimed in the originating application.

2.    Subject to order 3 below, the respondents pay two-thirds of the applicants’ costs of the claim and cross-claim.

3.    The second and third applicants respectively pay the costs of the respondents thrown away that were incurred in respect of the joinder of the second applicant up to 7 March 2014 and third applicant up to 11 March 2014.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    There are two presently outstanding issues following the conclusion of the trial on the parties’ claims relating to infringement and revocation of the patent in suit: see Orion Corporation v Actavis Pty Ltd [2015] FCA 909 (my principal reasons) and Orion Corporation v Actavis Pty Ltd (No 2) [2015] FCA 1026. The two issues are, first, whether Novartis Pharma AG, a Swiss company, and Novartis Pharmaceuticals (Australia) Pty Ltd (Novartis Australia) (collectively the Novartis parties) have any title to sue in these proceedings, and in particular whether Novartis is an exclusive licensee of the patent, and, secondly, what orders for costs ought be made.

The title to sue issue – preliminary

2    The Novartis parties accept that the consequence of the Full Court’s decision in Bristol-Myers Squibb Company v Apotex Pty Ltd (2015) 228 FCR 1 was that Novartis was not able to sue as an exclusive licensee under s 120(1) of the Patents Act 1990 (Cth) until, as it asserted, 7 March 2014. Novartis Australia asserted that it was an exclusive sub-licensee of Novartis, and any title that it had to sue depended on the capacity of Novartis to act as an exclusive licensee.

3    Since 2000, Orion and Novartis have been in an exclusive distribution relationship in which Novartis and its related companies have distributed products produced by Orion and its related companies throughout much of the world. Those products included products that Orion marketed under the brand name Stalevo. Those products were exploitations of three in one combinations of the active pharmaceutical ingredients (APIs) entacapone, levodopa and carbidopa and were the subject of the patent. Before describing the suite of agreements relating to this relationship, I will identify the provisions of the Act relevant to the rights of, variously, a patentee, an exclusive licensee and a person interested in a patent, to participate in proceedings, such as these, for infringement and revocation.

The statutory scheme

4    Relevantly, during its term, a patent gives the patentee “the exclusive rights … to exploit the invention and to authorise another person to exploit the invention” (s 13(1)). Those exclusive rights are personal property that, by dint of s 13(2), are capable of assignment. Any assignment of a patent must be in writing signed by or on behalf of both assignor and assignee (s 14(1)). The Dictionary in Sch 1 of the Act included the following defined terms:

exclusive licensee means 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.

exploit, in relation to an invention, includes:

(a)    where the invention is a product – make, hire, sell or otherwise dispose of the product, offer to make, sell, hire or otherwise dispose of it, use or import it, or keep it for the purpose of doing any of those things; or

(b)    where the invention is a method or process – use the method or process or do any act mentioned in paragraph (a) in respect of a product resulting from such use.

licence means a licence to exploit, or to authorise the exploitation of, a patented invention.

5    Relevantly, s 120(1) provided that “infringement proceedings may be started … by the patentee or an exclusive licensee”. Moreover, s 120(2) required that “if an exclusive licensee starts infringement proceedings, the patentee must be joined as a defendant unless joined as a plaintiff”. If the patentee was joined as a defendant, it was not liable for costs unless it entered an appearance and took part in the proceedings (s 120(3)). A defendant in infringement proceedings might apply in a counter-claim for revocation of the patent under ss 121 and 138. Under s 138(1) the Minister or any other person may apply for an order revoking the patent. And, s 139(1) provided:

139    Parties to proceedings

(1)    The patentee, and any person claiming an interest in the patent as exclusive licensee or otherwise, are parties to any proceedings under section 133, 134 or 138. (emphasis in subsection added)

6    In Bristol-Myers 228 FCR at 33 [103]-[105] Besanko, Jagot and Nicholas JJ approved of the reasoning of Yates J at first instance (Bristol-Myers Squibb Co v Apotex Pty Ltd (No 5) (2013) 104 IPR 23 at 105-106 [434]-[436]) that “the right to exploit” a patent in the Act’s definition of “exclusive licensee” was a single, indivisible right. They held that, accordingly, under the Act, the definition of “exclusive licensee” entailed that the grant of an exclusive licence had the necessary consequence of precluding both the patentee and any person other than the exclusive licensee (or a person authorised by it), from exercising any right to do each and all of the acts of exploitation of the patented invention.

Background – the earlier distributorship agreements

7    On 7 September 2000, Orion announced to the Finnish Stock Exchange that it was developing new formulations combining three active drug substances for the treatment of Parkinson’s disease and that it had signed a marketing agreement for the new product with Novartis. Orion and Novartis entered into three licence, supply and distribution agreements for territories comprising, respectively, Europe, the United States of America, and, relevantly for these proceedings on 7 September 2000, the rest of the world (the ROW agreement). The territory for the ROW agreement included Australia.

8    Orion granted Novartis a number of exclusive rights in the ROW agreement. The definitions of “Product” and “Finished Product” included first, any and all orally administered dosage forms and strengths containing the 3 APIs as the three sole active ingredients in any ratio formulated and manufactured by, on behalf of, or under licence from, Orion, for which Orion made or authorised a regulatory marketing application for the treatment of Parkinson’s disease and, secondly, “Product in ready to use, packaged form” (cll 1.20, 1.10). In particular, in cl 2.1(a) Orion granted Novartis the exclusive right under Orion’s patents “to import Product and use Product and Finished Product and offer to sell, sell, use and distribute Finished Product” in Australia. Additionally, Orion or its agents could meet any unsolicited orders for the Product received from customers located in the ROW agreement territory. However, cl 2.4 excluded from the grant of patent rights “any rights whatsoever for Novartis or any of its Affiliates to manufacture the Product … which rights [Orion] expressly reserves for itself”. (I will refer only to Orion below, without repeating the reference to a party authorised by it or acting on its behalf or its affiliates, in order to simplify the expression of these reasons.)

9    As I found in my principal reasons, Orion had filed the complete specification for the patent in Australia on 29 June 2000 ([2015] FCA 909 at [11]). Thus, the ROW agreement would apply, unless terminated, to the exploitation of Orion’s exclusive rights as patentee, if and when the patent were granted, as ultimately it was.

10    The ROW agreement also dealt in cl 6 with the possibility that in the future Novartis might decide to manufacture, distribute or otherwise commercialise in the ROW territory (including Australia) a product that could compete with the “Finished Product” (cl 6.1). Orion had the right to terminate the ROW agreement upon giving a specified period of notice, under cl 6.1(d), for “just cause” in respect of any country covered by the ROW agreement, if any of cll 6.1(a), 6.1(b) or 6.1(c) were activated.

11    The parties agreed to notify each other of certain matters, including any actual or apparent infringement of Orion’s patent rights by any third party in the ROW agreement territory (cl 7.7(a)). If Orion required Novartis to assist in pursuing or defending any legal proceedings in respect of such infringement claims or acts, Orion would reimburse Novartis for its reasonable out-of-pocket expenses in providing the agreed degree of assistance (cl 7.7(c)). If Orion did not bring infringement proceedings after Novartis gave it notice to do so, Novartis could bring such proceedings itself and Orion had to provide it with reasonable assistance, although any settlement of such claims could only occur with Orion’s consent (cl 7.7(d)).

12    The ROW agreement contained detailed provisions in cl 9 for orders for, supply of and payment for “Product”. Orion could arrange for a subsidiary or affiliate to perform its supply obligations to Novartis under cl 9.1(c). If it became apparent that Orion or its nominee would not be able to fulfil its supply obligations, Orion had to negotiate in good faith to provide Novartis with the raw materials and know how to manufacture the Product itself and, unless they reached agreement on the terms of Orion providing Novartis with that information cl 9.1(c) otherwise reaffirmed that Novartis had no right to manufacture either the 3 APIs or the Product.

13    Each party had the right to terminate the ROW agreement for particular causes under cl 16. A party could terminate if the other breached a material term or condition and the party in default had failed fully to cure, or take appropriate action to cure, the breach, either within a specified period of receiving written notice of it from the other, or, if Novartis failed to pay for delivery of “Product”, within a shorter period after receiving written notice of such a breach from Orion (cl 16.1(b)). As noted above, Orion could also terminate, pursuant to cl 6.1(d), the ROW agreement.

14    Additionally, Orion had the right, under cl 16.5, to elect to withdraw Novartis’ exclusive rights under the ROW agreement if Novartis failed to cure any breach, rather than terminating the ROW agreement, so that thereafter Novartis would only have non-exclusive rights.

15    The ROW agreement contained an “entire agreement” clause (cl 18) and neither it nor any rights conferred by it were assignable or capable of being transferred by one party without the other’s prior written consent (cl 19).

16    The term of operation of the ROW agreement was the shorter of the period of the last valid patent in the ROW territory, eight years from the Product Launch date or 12 years from the entry into the ROW agreement (cll 1.25, 21). However, under cl 21.1 the term could be extended at Novartis’ option for one year at a time for a maximum of six further years.

17    On 23 September 2010, the parties entered into an agreement to amend their overall relationships, including the ROW agreement, effective from 1 January 2010 (the first ROW amendment). They extended the term of the ROW agreement for four years from the expiry date in cl 1.25 of the ROW agreement. The first ROW amendment added a new cl 9.3.1 to deal with their relationship were a third party to begin commercialising a generic version of the Product on the market during the extended term. The new clause contemplated that the parties would negotiate an acceptable new pricing structure and, if that did not occur after a specified time, either could give the other a written notice of termination. It also provided that if an unrelated third party applied for regulatory approval to market a generic in, relevantly, Australia, Orion was free to negotiate supply terms with the third party and, if the generic went to market here, Orion could bring its own generic to market and could sell the active ingredients to any third party.

18    On 2 July 2012, the parties entered into a second agreement to amend their overall relationships, including the ROW agreement, that was effective immediately (the second ROW amendment). This resolved a dispute about pricing that had arisen and granted Orion a particular right to deal with a specific, confidential, potential commercial opportunity (cl 3.8). There is some confidential evidence relating to that subject that is not necessary to discuss in these reasons. Moreover, Novartis had the option to extend the term of the ROW agreement periodically for further periods of time up until a date that is confidential, but is after the date of these reasons (cl 3.10).

The 2013 licence and 2013 sub-licence

19    On 3 December 2013, Orion entered into a “confirmatory licence agreement” with Novartis. (the 2013 licence). This recited that the parties had entered into the ROW agreement and the first and second ROW amendments and that Novartis wished to confirm the terms of the ROW agreement as amended “for the purpose of Novartis being registered [in Australia and other territories] as the exclusive licensee of certain rights under Patents”, including the patent in suit (recital C).

20    Orion granted Novartis an “exclusive licence”, including under the patent in Australia, of specified rights that Novartis had under the ROW agreement as amended. It was common ground that those rights (and the rights conferred in the 2013 licence) did not include the right to manufacture the patented invention of the three-in-one combination (cl 2.1)). The 2013 licence would terminate for a particular territory or generally when the ROW agreement did so in that respect (cl 3.1). Where the terms of the 2013 licence conflicted with the ROW agreement as amended, the latter was to prevail (cl 4.2).

21    On 4 December 2013, Novartis entered into a sub-licence with Novartis Australia of the rights Novartis had under the 2013 licence (but which, of course, excluded the right to manufacture) (the 2013 sub-licence).

The legal landscape before these proceedings began

22    On 5 December 2013, Orion, Novartis and Novartis Australia, as applicants, commenced these proceedings. At that time there were conflicting decisions of single judges as to what the proper construction of the expression “the right to exploit the patented invention” meant as used in the definition of “exclusive licensee” in the Dictionary in Sch 1 of the Act. Holmes J had held that a number of exclusive licences could be granted in respect of different aspects of the inclusive definition of “exploit”, so that there could be, for example, one exclusive licence to make a patented invention, another to hire it and yet another to sell it: Grant v Australian Temporary Fencing Pty Ltd (2003) 59 IPR 170 at 182 [41].

23    As Sundberg J noted, when deciding whether to grant interlocutory relief in Pharmacia Italia SpA v Interphama Pty Ltd (2005) 67 IPR 397 at 400-402 [16]-[23], Holmes J’s decision departed from a different construction that Dixon CJ, Taylor and Windeyer JJ had adopted in Ex parte British Nylon Spinners Ltd (1963) 109 CLR 336 at 340-341 for the differently worded definition of “exclusive licence” in s 6 of the Patents Act 1952 (Cth). However, Sundberg J considered that, in light of Grant 59 IPR 170, it was arguable, for the purpose of his considering the grant of interlocutory relief, that there could be more than one exclusive licensee under the Act, each holding a licence for a different activity within the meaning of the definition of “exploit” in the Act.

24    However, on 30 October 2013, Yates J decided that there can only be one exclusive licensee of a patent under the Act. He held that an exclusive licence had to grant the licensee, to the exclusion of all others, including the patentee, the right to engage in and undertake all aspects or activities that were comprehended within the inclusive definition of “exploit”: Bristol-Myers 104 IPR at 105-106 [433]-[436].

25    Thus, at the time that the 2013 licence was granted and these proceedings commenced, there were conflicting authorities as to what sufficed to create an exclusive licence. Unsurprisingly, Actavis immediately challenged the title of each of Novartis and Novartis Australia to sue as applicants under the 2013 licence and 2013 sub-licence. That challenge explained the genesis of the next series of transactions between Orion, Novartis and Novartis Australia in March 2014.

The 2014 licences

26    On 7 March 2014, Orion granted Novartis an exclusive licence in respect of the patent (the 2014 licence). Novartis relied on the 2014 licence as the foundation of its title to sue in these proceedings. Relevantly, the 2014 licence, in which Novartis was called “the Licensee”, provided:

RECITALS

A    Orion is the registered proprietor of Australian Letters Patent No. 765932, entitled “Levodopa/carbidopa/entacapone pharmaceutical preparation (“the Patent”). The Patent relates to new pharmaceutical compositions comprising entacapone, levodopa and carbidopa, or a pharmaceutically acceptable salt or hydrate thereof, to a preparation method of the compositions, to a use of the compositions in a therapeutic method and to the use of entacapone, levodopa and carbidopa, or their pharmaceutically acceptable salts or hydrates, in the manufacture of an oral solid fixed dose composition.

B    The Licensee is the exclusive distributor in Australia of the levodopa/carbidopa/entacapone combination product Stalevo, derived from Orion or parties authorised by Orion (“the Product”).

C    Orion wishes to formalise an exclusive licence of the Patent in relation to the Product.

AGREEMENT

1.    Orion hereby grants to the Licensee, which accepts, an exclusive licence under the Patent from the date of the grant thereof to exploit (as that term is defined in Schedule 1 to the Patents Act 1990) the patented invention claimed in the Patent throughout the patent area (as that term is defined in Schedule 1 to the Patents Act 1990) to the exclusion of all other persons (“Exclusive Licence”).

2.    In consideration for the rights granted under this Exclusive Licence, the Licensee undertakes to purchase the Products and the active ingredients that are contained in the Products, exclusively from Orion or a party authorised by Orion.

…

6.    The Licensee shall have the right to sub-licence to its related bodies corporate its rights under this agreement but shall otherwise not assign, transfer, mortgage, charge or part with any of its rights, duties or obligations under this agreement or grant any sub-licence without the prior written consent of Orion. (bold emphasis added)

27    In addition, cl 3 provided that Novartis had authority to obtain registration of the 2014 licence by the Commissioner of Patents and cl 4 recited a request by both parties to the Commissioner to do so.

28    By a letter dated 6 March 2014, Orion and Novartis acknowledged that the 2014 licence (that the letter recorded as being dated 7 March 2014) would terminate simultaneously if the ROW agreement, as amended, terminated in respect of Australia in accordance with its terms or by mutual agreement.

29    On 11 March 2014, Novartis granted an exclusive sub-licence to Novartis Australia (the 2014 sub-licence), in relevantly similar terms to the 2014 licence. Novartis Australia gave an undertaking in cl 2 to purchase the Products and active ingredients from Orion or a party authorised by Orion, that matched Novartis’ identical undertaking in cl 2 of the 2014 licence. The sub-licence would also be registered (cll 3 and 4).

30    On 28 July 2015, Novartis exercised its right to extend the term of the ROW agreement for a further year until a date that is confidential, but is after the date of these reasons.

Actavis’ submissions – exclusive licence

31    Actavis argued that cl 2 of the 2014 licence qualified, and derogated from, the grant of the right to exploit in cl 1. It submitted that, reading the 2014 licence as a whole, Orion had reserved for itself the exclusive right to make the Product and the 3 APIs and so Novartis did not have all of the exclusive rights involved in exploiting the patented invention. Actavis contended that this asserted reservation conformed to the existing distributorship in the ROW agreement as amended, including the exclusion in cl 2.4 of the ROW agreement of any right of Novartis to manufacture the Product. Actavis contended that the interlinking of the right to terminate both the ROW agreement and the 2014 licence in the letter of 6 March 2014 reinforced its asserted construction of the 2014 licence.

32    Actavis submitted that recitals B and C and cl 2 of the 2014 licence identified that the rights granted to Novartis were “in relation to the Product”, as recital C stated, and not the wider right that an exclusive licensee would have to exploit the patented invention. Actavis contended that, read in the mutually known context of the existing relationship under the ROW agreement as amended and the letter of 6 March 2014, the 2014 licence did not grant Novartis the exclusive, or any, right to manufacture the Product or the 3 APIs. Rather, Actavis submitted the 2014 licence was, in effect, “business as usual” and, so, was only confirmatory of Novartis’ existing distributorship rights and did not amount to an exclusive licence within the meaning of the Act. Actavis argued that Orion had reserved to itself the right to manufacture the 2014 licence. That was because Orion could terminate the ROW agreement under cll 6.1(d) and 16.2(a), if Novartis were to manufacture the Product, and the 2014 licence would terminate concurrently in accordance with the letter of 6 March 2014.

33    Actavis did not argue that the 2014 licence took the form of a legally effective transaction that the parties to it intended should not have its apparent, or any, legal consequences: see Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471 at 486 [46] per Gleeson CJ, McHugh, Kirby, Hayne and Callinan JJ. Indeed, Actavis disavowed that it was asserting that Orion and Novartis had engaged in a sham by entering into the 2014 licence.

Consideration – exclusive licence

34    No contract is made in a factual or contextual vacuum. The words that parties use to express an agreement have to be understood from the perspective of an objective third person who is aware of the surrounding circumstances, known to both parties, in which the contract was entered into and the commercial purpose or objects to be secured by the contract.

35    The subjective beliefs and understandings of the parties to a contract have no role to play in its construction. The contract must be construed from the perspective of what a reasonable person, in the position of the parties, would have understood from the words (and, where relevant, conduct) used by each party and the language in which they expressed their agreement. Normally, that “requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction”, as Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ held in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179 [40] relying on what they had held in Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461-462 [22].

36    In Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 657 [35] French CJ, Hayne, Crennan and Kiefel JJ explained that:

Appreciation of the commercial purpose or objects is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating” [Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 350 per Mason J, citing Reardon Smith Line v Hansen-Tangen [1976] 1 WLR 989 at 995-996; [1976] 3 All ER 570 at 574. See also Zhu v Treasurer (NSW) (2004) 218 CLR 530 at 559 [82] per Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ; International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 at 160 [8] per Gleeson CJ]. As Arden LJ observed in Re Golden Key Ltd [2009] EWCA Civ 636 at [28]], unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption “that the parties … intended to produce a commercial result”. A commercial contract is to be construed so as to avoid it “making commercial nonsense or working commercial inconvenience” [Zhu v Treasurer (NSW) (2004) 218 CLR 530 at 559 [82] per Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ. See also Gollin & Co Ltd v Karenlee Nominees Pty Ltd (1983) 153 CLR 455 at 464]. (emphasis added)

37    Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ discussed the importance of the objective context as a frame of reference in the Court’s approach to arriving at the meaning of the parties’ agreed use of language in Royal Botanic Gardens and Domain Trust v South Sydney Council (2002) 240 CLR 45 at 52-53 [10], where they said:

In Codelfa, Mason J (with whose judgment Stephen J and Wilson J agreed) referred to authorities [In particular, speeches of Lord Wilberforce in Prenn v Simmonds [1971] 1 WLR 1381 at 1383-1385; [1971] 3 All ER 237 at 239-241; L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 at 261; and Reardon Smith Line v Hansen-Tangen [1976] 1 WLR 989 at 995-997; [1976] 3 All ER 570 at 574-576] which indicated that, even in respect of agreements under seal, it is appropriate to have regard to more than internal linguistic considerations and to consider the circumstances with reference to which the words in question were used and, from those circumstances, to discern the objective which the parties had in view. In particular, an appreciation of the commercial purpose of a contract [Reardon Smith Line v Hansen-Tangen [1976] 1 WLR 989 at 995-996; [1976] 3 All ER 570 at 574]: “presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.” Such statements exemplify the point made by Brennan J in his judgment in Codelfa [(1982) 149 CLR 337 at 401]:

“The meaning of a written contract may be illuminated by evidence of facts to which the writing refers, for the symbols of language convey meaning according to the circumstances in which they are used.” (emphasis added)

38    The surrounding circumstances, or background knowledge, known to both parties may include, as Gleeson CJ, Gummow and Hayne JJ held, “matters of law, as in this case where the obtaining of intellectual property protection was of central importance to the commercial development of [an invention the subject of a patent application]”: Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 at 188 [11]. And, in construing a commercial contract, the Court should interpret its wording fairly and liberally for the purpose of carrying out the object of the parties. That is, as Isaacs J put it in Cohen & Co v Ockerby & Co Ltd (1917) 24 CLR 288 at 300:

… as the Court would suppose two honest business men would understand the words they have actually used with reference to their subject matter and the surrounding circumstances.

39    Here, in cll 1 and 6 of the 2014 licence, the parties used the defined terms of the Act to grant an “exclusive licence” that conferred on Novartis, and persons authorised by it in a sub-licence, the right to “exploit” the patented invention throughout “the patent area” to the exclusion of all other persons. Actavis did not argue that the omission of the patentee, Orion, from the words of exclusion in cl 1 had any importance and I find that it did not.

40    I reject Actavis’ argument. I am of opinion that there is no basis to construe the expression “an exclusive licence” in cl 1 of the 2014 licence in any different way to its natural and ordinary meaning as a grant of the congeries of rights that is comprised in the rights of an “exclusive licensee”, as that term is defined in the Dictionary in Sch 1 of the Act.

41    First, the parties chose the terminology of the Act in which to express the nature and extent of the exclusive licence. Secondly, they dealt, in cl 6, with persons to whom Novartis, as licensee, could grant authority to use the right to exploit the patented invention, as the Act’s definition of “exclusive licensee” contemplated could occur when it used the expression “persons authorised by the licensee”.

42    Thirdly, the parties contemplated, in cl 3, that the 2014 licence would be registered by the Commissioner under s 187(1) of the Act and that that document would be available for public inspection at the Patent Office pursuant to s 193. The particulars of an entitlement as licensee must be registered by the Commissioner under s 187(1) and reg 19.1(a) of the Patents Regulations 1991 (Cth).

43    Fourthly, the 2014 licence was entered into in order to meet the then potential legal deficiencies in the 2013 licence if, as later happened, the Full Court decided that an exclusive licence had to confer the whole congeries of rights of the patentee exclusively on the licensee. The deliberate use of the statutory words with defined meanings in cl 1 must have been intended to convey that the rights that Orion granted to Novartis would be those of an “exclusive licensee”, as defined in the Dictionary in Sch 1 of the Act.

44    Fifthly, the commercial result that the parties had in mind was to create such an exclusive licence and to give Novartis title to sue as a plaintiff under s 120 of the Act in these proceedings. That is the only conclusion open, given that the parties had recognised, by then, the force as well as the commercial and litigious risks of Actavis’ challenge to the efficacy of the 2013 licence as a source of Novartis’ status to be an applicant in these proceedings. Both Orion and Novartis must have intended that Novartis be able to exercise the rights of an exclusive licensee to sue for infringement under s 120(1): Maggbury 210 CLR at 188 [11].

45    I also reject Actavis’ argument that the effect of cl 2, read in the context of the 2014 licence as a whole, was, or amounted to, a derogation from what was otherwise the plenary nature of cl 1, so that Novartis did not enjoy all of the rights of an exclusive licensee. I am of opinion that cl 2 did not have the effect of altering the grant or the operation of the congeries of rights conferred on Novartis as exclusive licensee by cl 1. Rather, Novartis promised in cl 2 to purchase Orion’s Stalevo products and the three APIs exclusively from Orion or a party authorised by it.

46    An exclusive licensee of a patented invention may need to contract with third parties for the supply of goods or services that the licensee wishes to use in order to exploit the exclusive licence. No doubt every such contract for the supply of goods or services has the legal effect of constraining the licensee’s otherwise plenary freedom to choose how to exploit the patented invention under an exclusive licence. Had Novartis made a contract to the effect of cl 2 with a third party, its legal rights to act as exclusive licensee of the patented invention under cl 1 would be no different. That is, the identity of a supplier of goods or services that a licensee contracts with to secure the wherewithal with which to exploit a patented invention cannot convert what would be an exclusive licensee, if the supplier to the licensee were a third party independent of the patentee, into some lesser congeries of rights merely because the supplier happens to be the patentee.

47    Indeed, commercial arrangements within multinational groups will often involve a parent or group operating company in one country entering into exclusive licences of patents held within the group with a subsidiary in Australia. Such dealings are normal in commerce. The mere identity of each contracting party, as a member of a group of itself, does not convert an ordinary business transaction into some different transaction. Nor does the expressed nature of a distributorship or other agreement operative in numerous countries change merely because it is made between multinational groups, the controlling minds of which intend that each group’s subsidiaries in various countries will contract with one another in accordance with their parents’ overarching agreement. Ordinarily, the parties intend that these contractual relationships will have their normal legal attributes. These will reflect the terms of the contracts as if entered into at arm’s length so that those contracts will work according to their terms.

48    Here, Actavis’ argument sought to convert cl 2 into a qualification of the plenary rights Orion had conferred on Novartis in cl 1. Each clause was an independent promise. No doubt, as a practical matter, if Novartis breached cl 2 by purchasing a generic form of Stalevo or any one or more of the 3 APIs from a supplier other than Orion, the latter could choose to terminate the 2014 licence.

49    The consideration for the grant of the licence was Novartis’ promise to purchase Stalevo products and the 3 APIs exclusively from Orion. However, the interaction between the grant of the rights in cl 1 and the consideration promised in cl 2 is that each is a separate promise by one party to the other, creating rights and obligations that depend for their legal efficacy on the mutuality of those promises with the others in the other operative clauses. That is, reading the 2014 licence as a whole and in the commercial context in which it was made, the plenary grant of rights in cl 1 was the price Orion was willing to pay in consideration of Novartis’ promise to make the particular kinds of purchase specified in cl 2.

50    The ROW agreement and other dealings between Orion and Novartis were part of the context and the background known to the parties at the time of their entry into the 2014 licence but they did not control its construction. Recital B recorded, in a very summary way, the then existing, complex relationship, in which Novartis was Orion’s exclusive distributor of Stalevo products in Australia. Those products were exploitations of the three in one combination of entacapone, levodopa and carbidopa, the subject of the patent. Recital C identified that Orion desired to formalise an exclusive licence of the patent. This was because of the legal uncertainty about the efficacy of the 2013 licence that had arisen following Yates J’s recent decision in Bristol-Myers 104 IPR 23 and Actavis’ challenge to Novartis’ title to sue: Maggbury 210 CLR at 188 [11].

51    The words in recital C, “in relation to the Product” do not have the effect of confining the scope of the grant in cl 1. The words “in relation to” are words of wide connection. The “Product” was the result of one means of exploitation of the patent. Novartis was, as recital B noted, the exclusive distributor of the “Product”. Both Orion and Novartis were in an existing relationship “in relation to the Product” and both parties contemplated that they would continue in a commercial relationship in relation to that Product, albeit that the 2014 licence would alter, or add features to, that existing relationship. No doubt both Orion and Novartis wished to continue their existing distribution relationship and the letter of 6 March 2014 operated to tie the continuance, and termination, of that relationship, to the term of the 2014 licence. But, both parties to the 2014 licence had entered into it as a commercial, legally effective contract. They intended to bring about a commercial result, namely that Novartis could exercise the rights of an exclusive licensee including that it could bring these infringement proceedings under s 120 of the Act, together with Orion: Electricity Generation 251 CLR at 657 [35].

52    I reject Actavis’ argument that, somehow, because of cl 2 and recitals B and C, the content of the ROW agreement and the co-extensive terms of both agreements, the 2014 licence did not amount to an exclusive licence. First, cl 2 did not preclude Novartis from exploiting any of the congeries of rights that it had under cl 1. Rather, cl 2 was a promise by Novartis that it would contract exclusively with Orion if it wished to purchase either the “Products” (as defined by the singular capitalised word “Product” in recital B) or the 3 APIs they contained. However, nothing in the 2014 licence prevented Novartis from making any combination of the three APIs the subject of the patent. Novartis was free to make each API itself and then to incorporate them into a three in one combination tablet. If cl 2 were not in the 2014 licence, but, contemporaneously with its execution, Novartis had entered into an exclusive contract with a third party supplier of a generic similar to Stalevo, or of the manufactured 3 APIs, such an exclusive supply contract could not operate as a derogation of the right in cl 1 to exploit the patented invention.

53    Actavis did not identify any substantive commercial purpose that its construction of the 2014 licence would effect to change the pre-existing contractual relationship between Orion and Novartis under the ROW agreement. Moreover, as I have noted, Actavis eschewed arguing that the 2014 licence was a sham. Orion and Novartis already had a binding and satisfactory distributorship relationship governed by the ROW agreement. At the time that the 2014 licence was entered into, both of those parties wanted to put Novartis into the position in which it could establish its then uncertain title to sue in these proceedings as the exclusive licensee of the patent. And, that result is what recital C and, more particularly, cl 1, stated that the parties were bringing about by entering into the 2014 licence.

54    If Novartis acted in breach of cl 2 by purchasing Stalevo, somehow (given that Orion appeared to have worldwide patent protection for the products it marketed under the Stalevo brand name, as the ROW and related agreements in evidence suggested) from a source that was not authorised by Orion, Novartis would have done so in exploitation of its rights under cl 1 and not as a breach of cl 1. Rather, any such purchase would be a breach of the independent promise in cl 2 that Novartis gave, as the exclusive licensee, as a means by which it would exploit the plenary licence that cl 1 conferred on it.

55    Moreover, if Novartis acted independently, or in breach, of its other separate contractual obligations under the ROW agreement, Orion would have the right to terminate both the ROW agreement and 2014 licence. Crucially, cl 2 did not require Novartis to make either of the two classes of purchase (of manufactured Stalevo or its active ingredients) as a condition of its exercise of the right to exploit the exclusive licence in cl 1. Rather, cl 2 bound Novartis, if it wished to buy manufactured Stalevo or its active ingredients, to do so from one source, namely, Orion. And, cl 2 did not create any contractual regime for such purchases, doubtless because the ROW agreement had already done so. If, however, Novartis wished to manufacture the same substances (Stalevo or the active ingredients), cl 1 allowed it to do so without infringing the Patent. Indeed such manufacture would be an exploitation of the rights of the patentee that the 2014 licence conferred on Novartis.

56    In other words, Novartis obtained the congeries of rights to exploit the potential invention under cl 1, and if, in doing so, it acted in a way that Orion regarded as contrary to its commercial interests, Orion could terminate the 2014 licence under its express power to do so pursuant to the 6 March 2014 letter.

57    In those circumstances, there is no reason to arrive at the construction of the 2014 licence that Actavis propounded. Such a construction would require cl 1 to be read down and in a way that would negate the only reason why, in the circumstances, Orion and Novartis wanted to enter into the 2014 licence, namely to give Novartis the actual rights of an exclusive licensee: Maggbury 210 CLR at 188 [11]; Electricity Generation 251 CLR at 657 [35].

Conclusion – exclusive licence

58    For these reasons, I am of opinion that Novartis had title to sue in these proceedings as the exclusive licensee of the patent from the time that the 2014 licence was entered into on 7 March 2014.

Novartis Australia’s position

59    It was common ground that Novartis Australia had no status to sue as a patentee or exclusive licensee. However, it held the 2014 sub-licence from 11 March 2014. By force of s 139(1) “any person claiming an interest in the patent as exclusive licensee or otherwise” is a party to revocation proceedings under s 138, of the kind in Actavis’ cross-claim here. Thus, Novartis Australia was a person entitled to the exclusive rights to exploit Novartis’ rights by force of their assignment to it in the 2014 sub-licence. Novartis Australia would be affected by Actavis’ revocation proceeding. Novartis Australia also had an interest in the enforcement of the patent pursuant to Orion’s claim as patentee, and Novartis’ as exclusive licensee, that Actavis would infringe the patent. Under the 2014 sub-licence, Novartis Australia had the exclusive right to exploit the patent in Australia.

60    I do not consider that s 120(1) of the Act precluded a person other than the patentee or exclusive licensee from bringing infringement proceedings. The words of s 120(1) are permissive in providing that “infringement proceedings may be started … by the patentee or an exclusive licensee”. Indeed, s 120(2) contemplated that if an exclusive licensee brings such proceedings, the patentee might not support it and, in that case, the subsection provided that the patentee must be joined as a defendant.

61    Moreover, a patent and its exclusive rights are assignable under ss 13(2) and 14 of the Act. If Actavis’ argument that only a patentee or the exclusive licensee could bring infringement proceedings were right, an exclusive sub-licensee would not be able to enforce its rights directly. Yet, an exclusive licensee can assign its statutory exclusive rights to a sub-licensee under the Act. Both the 2014 licence and the 2014 sub-licence involved an assignment of exclusive, if incorporeal, rights of property that consisted of the power to enforce a statutory monopoly in respect of exploiting the patented invention during the term of the patent: cf JT International SA v Commonwealth (2012) 250 CLR 1 at 30-32 [34]-[37] per French CJ, 49 [105] per Gummow J, 97-98 [269]-[275] per Crennan J, 125 [347]-[348] per Kiefel J; Colbeam Palmer Ltd v Stock Affiliates Pty Ltd (1968) 122 CLR 25 at 34 per Windeyer J.

62    Novartis Australia received an assignment (by force of ss 13(2) and 14(1) of the Act) of Novartis’ exclusive property rights to exploit the patented invention pursuant to the 2014 sub-licence. I am of opinion that as the legal assignee of a statutory right, Novartis Australia, together with its assignor (Novartis) and the patentee, had title to sue Actavis, and that Novartis Australia was a proper and necessary party to the claim and cross-claim. If neither the patentee nor the immediate exclusive licensee wished to bring infringement proceedings, an exclusive sub-licensee must be capable of enforcing the exclusive rights assigned to it that the Act contemplated could be assigned and enforced. This must be so for the reasons given by Holt LCJ in Ashby v White (1703) 2 Ld Raym 938 at 953 where he famously held:

If the plaintiff has a right, he must of necessity have a means to vindicate and maintain it, and a remedy if he is injured in the exercise or enjoyment of it; and indeed it is a vain thing to imagine a right without a remedy; for want of right and want of remedy are reciprocal. (emphasis added)

63    I am of opinion that it is not necessary for a sub-licensee to bring separate proceedings against its licensor and those above it in its chain of title, seeking to compel those persons to bring infringement proceedings. That is because, first, s 120(2) reflects the general law principle that where an assignor of legal rights for value refuses or fails to assist the assignee to sue to enforce those rights (after provision of an appropriate indemnity by the assignee), equity will assist the assignee to sue the third party and join the assignor as a party: cf e.g. Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 at 27 per Windeyer J. Moreover, separate ancillary proceedings of that kind would be unnecessary by dint of s 22 of the Federal Court of Australia Act 1976 (Cth): cf John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1 at 46-48 [132]-[136] per French CJ, Gummow, Hayne, Heydon and Kiefel JJ: see too Edwards v Santos Ltd (2011) 242 CLR 421 per French CJ, Gummow, Crennan, Kiefel and Bell JJ at 425 [4]-[5]; 444 [64]-[65] per Heydon J.

64    Here, the presence of Novartis Australia as an applicant ensured that all persons who might claim an interest recognised by the Act in the exclusive rights the subject of the patent in suit would be party to a decision of the Court as to the enforceability of those rights. In any event, Novartis Australia was a proper party to both the claim and cross-claim because the cross-claim for revocation sought to deprive it of the benefit of property rights, that ss 13(2) and 14 allowed it to enjoy by the assignment of the exclusive rights to exploit the patent pursuant to the 2014 sub-licence.

Costs – the parties’ arguments

65    Orion argued that it should receive 50% of its costs on the infringement case and all of its costs for the balance of the proceedings, other than an adjustment for the period when the Novartis parties had no title to sue. The Novartis parties accepted they were liable for Actavis’ costs of that issue in that period.

66    Actavis argued that it should only be liable for 20% of the overall costs. It contended that its cross-claim was purely defensive. It argued that this was evidenced by its immediate abandonment of its challenge to the validity of claim 11 once Orion abandoned its infringement action on that claim.

Costs – consideration

67    I found in my principal reasons ([2015] FCA 909 at [320]) that each side had had a measure of success and failure at the trial. Orion failed on its arguments as to both the construction and infringement of claims 1, 2, 12, 13 and 14. In addition, Orion abandoned its reliance on claim 11 on the eve of the trial and Actavis immediately abandoned its revocation case on that claim in response. Much of the evidence, including as to common general knowledge, was relevant to consideration of issues relating to all claims in contest. However, a reasonably significant amount of time was spent, and some evidence related to, dealing with those five claims in the infringement case.

68    I reject Actavis’ argument that it should be liable only for 20% of the overall costs. However “defensive” its cross-claim for revocation was, Actavis’ evidence in support of the cross-claim was largely, if not entirely, inclusive of evidence that it chose to deploy to meet the case against it for infringing claims 17 to 21 (including by seeking their revocation). While there was additional time, and expense, taken up in arguing the (as events turned out, unnecessary) defence by way of revocation proceedings in respect of claims 1, 2, 12, 13 and 14, much of the same evidence was necessary to deal with the other contested claims of the patents. I found that Actavis’ revocation proceedings failed on all matters that it argued.

69    Despite the resources devoted to the argument of the issue, the costs that Actavis can recover against Novartis and Novartis Australia in the period between the commencement of the proceedings on 5 December 2013 and 7 and 11 March 2014 respectively, must be relatively modest. There is no basis for awarding, as Actavis had sought, those costs on an indemnity basis. In the period before January 2015 single judges had expressed different views as to what was sufficient to amount to an exclusive licence under the Act. That uncertainty existed until the Full Court’s decision in Bristol-Myers 228 FCR 1. In those circumstances, I do not consider that Novartis or Novartis Australia acted unreasonably or in a way that could attract an award of indemnity costs against them.

70    In my opinion, justice will be done by an order that, for the periods up to 7 and 11 March 2014 respectively, Novartis and Novartis Australia pay Actavis’ costs thrown away by reason of their lack of standing.

71    I discussed the discretionary statutory power to award costs and the legal principles generally applicable, including in patent litigation, in Apotex Pty Ltd v Les Laboratoires Servier (No 5) (2015) 324 ALR 549 at 550-553 [3]-[14]. Having regard to all of the circumstances of the proceedings, I consider that Actavis should pay two-thirds of the total costs in respect of the claim and cross-claim of Orion (and from on and after 7 and 11 March 2014, respectively of Novartis and Novartis Australia): Gray v Richards (No 2) (2014) 315 ALR 1 at 2 [2] per French CJ, Hayne, Bell, Gageler and Keane JJ. In my opinion that proportion strikes a fair overall balance, reflecting the relative successes and failures of each side in the proceedings.

Associate:

Dated:    3 December 2015

SCHEDULE

NSD 2456 of 2013

BETWEEN:

ORION CORPORATION

First Applicant

NOVARTIS PHARMA AG

Second Applicant

NOVARTIS PHARMACEUTICALS (AUSTRALIA) PTY LTD ACN 004 244 160

Third Applicant

ACTAVIS PTY LTD ACN 003 854 626

First Cross-Claimant

MEDIS PHARMA PTY LTD ACN 109 225 747

Second Cross-Claimant

AND:

ACTAVIS PTY LTD ACN 003 854 626

First Respondent

MEDIS PHARMA PTY LTD ACN 109 225 747

Second Respondent

ORION CORPORATION

First Cross-Respondent

NOVARTIS PHARMA AG

Second Cross-Respondent

NOVARTIS PHARMACEUTICALS (AUSTRALIA) PTY LTD ACN 004 244 160

Third Cross-Respondent