Federal Court of Australia

H Lundbeck A/S v Sandoz Pty Ltd [2023] FCA 740

ORDERS

THE COURT ORDERS THAT:

1.    The proceeding be stayed pending the final determination of the review commenced in the Administrative Appeals Tribunal as case AAT2019/2512, including the final determination of all appeals therefrom and the determination of any applications for special leave to appeal.

2.    The applicants pay the respondent’s costs of and incidental to the respondent’s interlocutory application dated 23 August 2022.

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

REASONS FOR JUDGMENT

YATES J:

Introduction

1    This proceeding is part of a complex web of litigation involving Patent No. 623144 (the patent). The patent claims the pharmaceutical substance escitalopram as well as compositions containing, and methods of preparing, escitalopram.

2    On 21 November 2018, Jagot J (when in this Court) found that the respondent, Sandoz Pty Ltd (Sandoz), had infringed claims 1 and 3 of the patent: H Lundbeck A/S v Sandoz Pty Ltd [2018] FCA 1797; 137 IPR 408. On 19 February 2019, her Honour granted a declaration of infringement and made an order that Sandoz pay damages to the first applicant, H Lundbeck A/S (Lundbeck), in the amount of $16,219,000 together with interest calculated to 12 February 2019 in the sum of $7,519,000 with interest accruing at $2,604 per day. Her Honour granted other relief. The details of that relief are not relevant for present purposes.

3    The period of infringement covered the extended term of the patent. Prior to the commencement of the proceeding, Sandoz had applied for a licence under s 223(9) of the Patents Act 1990 (Cth) (the Patents Act) and reg 22.21 of the Patents Regulations 1991 (Cth) covering that period. The application for the licence was opposed by Lundbeck. At the time that Jagot J made her decision and, importantly, granted the declaration of infringement and made the order for damages, the opposition had not been determined. However, in its defence, Sandoz had pleaded that it was an applicant for the licence.

4    In her reasons for judgment, Jagot J said:

550        I am also aware that Sandoz has pleaded that if it required a licence from Lundbeck to supply its escitalopram products (which, on my conclusions, it did from 15 June 2009 until 9 December 2012 and did not have a licence (which I have concluded it did not), then it has applied for such a licence under s 223(9) of the Patents Act. I have been informed that the application for a licence will be heard on 19 and 20 November 2018. My preliminary view is that the appropriate way to deal with this is for me to make final orders as appropriate once all required calculations are complete and for me to hear and determine any application for a stay of those orders as appropriate.

5    Her Honour’s preliminary view came to be reflected in the orders made on 19 February 2019.

6    On 11 April 2019, the Commissioner of Patents (the Commissioner) granted Sandoz a licence to exploit the invention claimed in the patent: H Lundbeck A/S v Sandoz Pty Ltd [2019] APO 18; 153 IPR 170.

7    On 6 May 2019, Lundbeck applied to the Administrative Appeals Tribunal (the Tribunal) to review the Commissioner’s decision. The making of the application did not affect the operation of the decision: s 41(1) of the Administrative Appeals Tribunal Act 1975 (Cth).

8    On 25 August 2020, the review in the Tribunal was stayed by consent. The review remains stayed. Therefore, at the present time, the licence remains.

9    The terms of the licence are:

1.    The licence commences on 14 June 2009 and continues until the expiration of the term of the patent on 9 December 2012.

2.    The licence is personal to Sandoz Pty Ltd in the sense that:

a)    it belongs to that company;

b)    it may be transferred with that company if that company changes hands by acquisition or merger, but it cannot be assigned or transferred; and

c)    it cannot be sublicenced (sic).

10    I should also record that Lundbeck has in play a potential challenge (by way of appeal) on the question of whether Sandoz’s application for a licence under s 223(9) of the Patents Act was even a valid application: see H Lundbeck A/S v Commissioner of Patents [2017] FCA 56; 249 FCR 41, and the orders made in that proceeding on 14 February 2017.

11    On 4 August 2020, a Full Court set aside the declaration of infringement granted by Jagot J and the order for damages her Honour made in Lundbeck’s favour: Sandoz Pty Ltd v H Lundbeck A/S [2020] FCAFC 133; 384 ALR 35.

12    Lundbeck was granted special leave to appeal to the High Court from the judgment of the Full Court. On 9 March 2022, the High Court allowed the appeal: H Lundbeck A/S v Sandoz Pty Ltd [2022] HCA 4; 399 ALR 184. The High Court made orders which, in effect, restored the declaration made by Jagot J. The High Court did not, however, restore the orders her Honour made for damages and pre-judgment interest. Rather, the High Court declared that Lundbeck was entitled to damages and pre-judgment interest, and remitted the matter to Jagot J for recalculation. In that regard, the plurality noted at [77]:

77    There is no dispute between the parties that the recalculation of damages must be undertaken in accordance with an adjustment made by the Full Court to the primary judge’s discount of the damages from 25% to 2 to 3%. The recalculation of pre-judgment interest on those damages must be undertaken in accordance with the holding of this Court that Lundbeck Denmark’s cause of action arose only on the grant of the extension of the term of the Patent on 25 June 2014.

13    The High Court also made the following order:

(T)he parties be given liberty to apply to the primary judge for a stay of the remitted proceedings pending the determination of the proceedings relating to the licence granted to the appellant by the Commissioner of Patents on 11 April 2019 under s 223(9) of the Patents Act 1990 (Cth).

14    In relation to this order, the plurality noted at [78]:

78    There is also no dispute between the parties that the order remitting the matter to the primary judge for the recalculation of damages should be framed to ensure that it does not prejudice the outcome of a pending review by the Administrative Appeals Tribunal sought by Lundbeck Denmark of the decision by the Commissioner, after the decision of the primary judge but before the decision of the Full Court, to grant a licence under s 223(9) of the Act and reg 22.21 of the Patents Regulations 1991 (Cth).

(Footnote omitted.)

15    Sandoz relies on the High Court’s grant of liberty to apply, and seeks an order that the remitted proceeding be stayed pending the final determination of the review in the Tribunal of the decision to grant the licence, and the final determination of all appeals and applications for special leave to appeal therefrom.

16    The question before the Court is whether that stay should be granted. Lundbeck opposes the application.

The parties’ contentions

17    Although Sandoz is the moving party in the present application, it is convenient to commence with Lundbeck’s opposition to a stay being granted.

Lundbeck’s contentions

18    Lundbeck submits that the only issue remaining in this proceeding is the “purely mechanical recalculation of the damages awarded by this Court to reflect the interest and discount decisions”. Lundbeck submits that it is appropriate to proceed with that task because:

(a)    it is efficient to do so (there is unlikely to be any issue in relation to the calculation itself);

(b)    it would be consistent with the conduct of the proceeding to date (Jagot J proceeded to calculate damages and make a final order for damages notwithstanding that the (then) licence application was pending);

(c)    it would be consistent with the “structure” of the High Court’s final orders made on 9 March 2022, which directed that the matter be remitted for the recalculation of damages and pre-judgment interest payable to Lundbeck, but also contemplated the possibility of a stay application in respect of the orders to be made in the remitted proceeding pending the determination of the licence proceedings;

(d)    the quantum of damages will be a relevant consideration for the Tribunal in determining whether a licence should be granted to Sandoz; and

(e)    if the quantification of damages is delayed, Lundbeck will be materially disadvantaged because of the lower interest it would recover.

19    These contentions must be considered in light of Lundbeck’s further contention that the question of Sandoz’s liability for patent infringement, and Lundbeck’s entitlement to damages, are res judicata. According to Lundbeck, the calculation of damages and pre-judgment interest is merely consequential on the orders that have already been made.

20    Lundbeck submits that Sandoz allowed this position to occur through its own forensic decisions. Sandoz was determined to have the Court adjudicate its defence to the cause of action for patent infringement on the basis that, in the absence of a licence from Lundbeck, it did not infringe the patent. Lundbeck submits that given Jagot J’s rejection of Sandoz’s defences, and given the judgment Lundbeck has obtained, the licence on which Sandoz relies is of no consequence. (I observe that Lundbeck argues this to be so even though it maintains its application for review in the Tribunal.) Lundbeck submits that, as the licence is of no consequence, Sandoz cannot be prejudiced by the Court proceeding to calculate Lundbeck’s damages and pre-judgment interest.

21     Lundbeck has made it clear that, should Sandoz not succeed in its present application for a stay, but subsequently apply for a stay of execution of any order that quantifies Lundbeck’s damages and pre-judgement interest, Lundbeck will oppose such an application. Once again, Lundbeck contends that, in any such application, Sandoz will need to explain how a judgment which has proceeded to finality can be defeated by “any licence which may be granted by the AAT”.

Sandoz’s contentions

22    Sandoz contends that, notwithstanding the course adopted by Jagot J (reflected in [550] of her Honour’s reasons), a stay of the remitted proceeding should be granted. Circumstances have changed. A licence under s 223(9) of the Patents Act has now been granted and remains in force; Jagot J’s order for damages has been set aside; and, at present, the quantum of damages remains to be determined.

23    As to the last-mentioned matter, Sandoz contends that determining the remitted proceeding will require the resolution of a number of complex questions, including:

(a)    the effect of the licence in relation to the calculation of damages, including its effect should the term of the licence be varied on review by the Tribunal; and

(b)    the relevance of the licence in light of Lundbeck’s contention that the questions of Sandoz’s liability for patent infringement, and Lundbeck’s entitlement to damages, are res judicata.

24    Sandoz submits, therefore, that the task before the Court in the remitted proceeding will not be the “purely mechanical recalculation of the damages awarded by this Court to reflect the interest and discount decisions”, as contended by Lundbeck.

25    Sandoz has made it clear that if its application for a stay is not granted, and the Court proceeds to determine the remitted proceeding, it proposes to rely on the licence and seek to have its legal effect “confirmed”. In this regard, Sandoz contends that, because it has a licence, it “did not infringe during the licensed period”. It contends, alternatively, that damages should be assessed as nil which, according to Sandoz, would be consistent with the decision of the Supreme Court of the United Kingdom in Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd [2013] UKSC 46; [2014] AC 160.

26    Sandoz disputes that there is any res judicata. It contends that there is no final judgment of the kind necessary to establish a res judicata: Effem Foods Pty Ltd v Trawl Industries of Australia Pty Ltd (1993) 43 FCR 510 at 514; Computer Edge Pty Ltd v Apple Computer Inc (1984) 54 ALR 767. It contends that substantive issues, including issues concerning liability, remain and have not been finally resolved.

27    Sandoz contends, in particular, that the legal effect of the (now granted) licence is a “live matter in issue that remains to be determined”. It contends that the scope of the remitted proceeding would permit it to agitate these questions. Moreover, it contends that even if questions of liability for infringement are res judicata, this cannot apply in respect of the calculation of damages, which remains open for determination.

28    Sandoz submits that, in these circumstances, Lundbeck will not suffer prejudice if the proceeding is stayed. In fact, it contends that Lundbeck will suffer greater prejudice if the proceeding is not stayed because (on Sandoz’s case) the damages and pre-judgment interest payable to Lundbeck will be assessed as nil. This is because Sandoz has the benefit of an extant licence under s 223(9). Further, Sandoz submits that, if a stay is not granted, Lundbeck will be put to the simultaneous tasks of defending the effect of the licence in the remitted proceeding and contesting the validity of the licence in the Tribunal.

29    Sandoz submits that, in all the circumstances, the most efficient course is for Lundbeck’s application for review in the Tribunal to conclude prior to the remitted proceeding being determined. In that way, the validity and scope of the licence will have been finally determined before the Court gives a final judgment on damages and pre-judgment interest (on which, it says, the licence must have a direct bearing).

30    Sandoz acknowledges that Lundbeck will continue to argue that Sandoz’s liability for patent infringement, and Lundbeck’s entitlement to damages, are res judicata. Its concern is that, if the proceeding reaches the stage where Lundbeck has a money judgment, Lundbeck will rely on that fact to reinforce its contention that these matters are res judicata (as I have noted, Sandoz says that, at the present time, there is no final judgment to support a res judicata). This would also enable Lundbeck to press on the Tribunal, with greater assurance, its contention, which Sandoz disputes, that it would be futile to grant a licence to Sandoz under s 223(9) of the Patents Act. The point appears to be that, if the proceeding reaches the stage of a money judgment being given, the outcome of the pending review before the Tribunal could well be prejudiced by enhancing Lundbeck’s forensic position. This would be inconsistent with the sentiment expressed by the plurality in the High Court at [78] of their Honours’ reasons.

31    Relatedly, Sandoz emphasises that, contrary to Lundbeck’s contention, the liberty granted by the High Court was not in respect of a stay of execution of the final orders made as a result of the recalculation of damages and pre-judgment interest. Rather, the liberty was in respect of a stay of the remitted proceeding itself. The remitted proceeding concerns the remitted matter. The remitted matter is the recalculation of damages and pre-judgment interest.

32    Finally, Sandoz contends that, to the extent that the question of delay is relevant, Lundbeck has delayed in seeking a resolution of its application for review in the Tribunal.

Consideration

33    I am persuaded that a stay of the remitted proceeding should be granted, as sought by Sandoz.

34    Despite Lundbeck’s contention that Sandoz’s liability for patent infringement, and Lundbeck’s entitlement to damages, are res judicata, and that the only issue remaining in the proceeding is the “purely mechanical recalculation of the damages awarded by this Court to reflect the interest and discount decisions”, I am not persuaded that this is so. A number of interrelated issues are presently before the Court for determination, including the scope of the remitted proceeding itself.

35    Firstly, Sandoz disputes that there is any res judicata. This threshold question will need to be decided.

36    Then, if there is a res judicata, the significance of that finding for the purposes of the remitted proceeding, including as to the scope of the remitted proceeding, will need to be decided. This will raise a difficult question about the interplay between the principles of res judicata and the legal significance (at that time), if any, of a licence granted under s 223(9) of the Patents Act.

37    As I have noted, Lundbeck argues that such a licence can be of no effect on the outcome of the remitted proceeding. As I understand it, this is one reason why Lundbeck contends that the scope of the remitted proceeding is limited (although I note that Lundbeck also relies on the terms of the order for remittal that the High Court made). There are, however, two immediate matters to note in that regard.

38    The first matter is that s 223(9) speaks of the “prescribed provisions” (found in reg 22.21) having effect “for the protection or compensation” of relevant persons. This consideration puts a licence granted under s 223(9) in a particular setting. It is to achieve a particular statutory purpose. Moreover, reg 22.21(5) speaks of the licence being granted by the Commissioner, not by the patentee or the Commissioner on behalf of the patentee. Thus, the licence is a statutory measure to overcome the disadvantage or prejudice that relevant persons suffer in prescribed circumstances.

39    Further, the “prescribed provisions” envisage the grant of a licence where relevant persons have already exploited an invention. As I understand Lundbeck’s submissions, this means that no licence under s 223(9) can be justified unless it is established that the patent has been infringed. I observe that, if that be so, it is arguable that the statute envisages that a finding of infringement in court proceedings would not preclude the grant of such a licence.

40    The second matter is that it is certainly open to be argued that, on the face of the orders made on 24 May 2022, the High Court had in mind that the outcome of the remitted matter could be affected by the determination, on review by the Tribunal, of whether a licence should be granted under s 223(9) of the Patents Act. Hence, the concern expressed by the plurality at [78] of the reasons that the orders made by the High Court should not prejudice the outcome of the pending review by the Tribunal of whether Sandoz should be granted such a licence.

41    I have no present view on these matters beyond the fact that they show that the determination of the remitted proceeding will not be, as Lundbeck would have it, a “purely mechanical” matter involving, as it were, only matters of arithmetic.

42    If a stay is granted, and Lundbeck is successful in its review and in subsequent appeals concerning the s 223(9) licence—such that the Commissioner’s decision is set aside and there is no licence—then the complications of the scope and effect of a licence under s 223(9) will be removed. Difficult legal questions will fall away. One would then expect the recalculation of damages and pre-judgment interest to be a relatively straightforward matter.

43    If a stay is granted, and Lundbeck is not successful in its review, the complication of the scope and effect of the licence, and the difficult legal questions, will remain. The prospect of a relatively straightforward recalculation of damages and pre-judgment interest will not eventuate. But, apart from the delay in the Court making final orders, the parties will not be worse off.

44    In that connection, the question of further delay must be viewed in the overall context of the prodigious amount of litigation between the parties that has already taken place over a great many years, and the apparent desire of the parties to contest every legal issue that arises in relation to the patent. In the particular circumstances of this case, I do not consider that the question of further delay is a particularly weighty consideration.

45    I do not accept that, if a stay is granted, Lundbeck will be prejudiced in the conduct of the review it has commenced in the Tribunal. As I have noted, Lundbeck contends that the quantum of damages will be a relevant consideration for the Tribunal in determining whether a licence should be granted. Presently, I do not understand how the quantum of damages is relevant to that question. However, should the quantum of damages be relevant, Lundbeck is already in a position to provide the Tribunal with a “straightforward” calculation of damages which does not take into account the effect, if any, of a licence under s 223(9) of the Patents Act.

46    Further, as I have also noted, Lundbeck contends that it will be disadvantaged if there is a delay in the quantification of damages because delay will entail a lower calculation of pre-judgment interest. I do not accept that submission. Section 51A of the Federal Court of Australia Act 1976 (Cth) (the Federal Court Act) provides that the rate of pre-judgment interest is a matter for the Court to determine. A successful party is not limited to a fixed rate of interest as is the case for post-judgment interest under s 52 of the Federal Court Act. It will remain open to Lundbeck, at the appropriate time, to adduce evidence and advance submissions as to the rate of pre-judgment interest that should apply to any money judgment it obtains, taking into account the fact that a stay of the remitted proceeding has delayed the making of a final order for damages.

47    An additional consideration in favour of granting a stay is that, even if the complication of the scope and effect of the licence and the difficult legal questions remain after the final determination of the review in the Tribunal, uncertainty will be removed as to the precise term of the licence.

48    Further, it is not in the interests of the administration of justice that there be parallel proceedings running when the resolution of one of those proceedings (here, the review in the Tribunal) may well obviate the need to determine a significant number of complex legal issues, or at least provide greater clarity in respect of those issues, in the other proceeding (here, the remitted proceeding). I am satisfied that the efficient use of the Court’s judicial and administrative resources, and the efficient disposal of the Court’s overall caseload, weigh heavily in favour of a stay of the remitted proceeding being granted as sought by Sandoz: s 37M of the Federal Court Act.

49    Finally, I should add for completeness that I do not accept, as Lundbeck might be suggesting, that it would be appropriate to defer, as it were, Sandoz’s application for a stay and put to one side the issues it wishes to contest. The suggestion appears to be that, somehow, the Court should simply proceed to recalculate damages and pre-judgment interest, and make final orders, without considering those questions, in the sure knowledge that Sandoz would then seek a stay of execution of the money judgment, at which time those questions could then be agitated.

50    In my view, to proceed in that manner would be procedurally unfair and unjust. A simple refusal to deal with the stay application on its merits would deny Sandoz the opportunity to make a bona fide application to the Court on legitimate grounds affecting the very question of the amount of damages that should be awarded in the unusual circumstances of this case. An application to stay the execution of a final order is not the procedural equivalent of an application to stay a proceeding in which the order might be made.

51    In this regard, it is clear beyond argument that, when it remitted the proceeding to this Court, the High Court envisaged, by the express grant of liberty, that the Court could and, if asked, would entertain the very application that Sandoz makes. I do not accept that the leave granted by the High Court was in respect of a stay of execution of orders resulting from the determination of the remitted matter. It was a grant of leave to seek a stay of the proceeding that would determine the remitted matter.

Conclusion

52    For these reasons, the stay that Sandoz seeks will be granted. Lundbeck must pay Sandoz’s costs of the application.

Associate:

Dated:    4 June 2023